AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON
____________, 1998 REGISTRATION NO. 333-63055
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 1
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
MILLENIUM SEACARRIERS, INC.
OAKMONT SHIPPING AND TRADING LIMITED MILLENIUM II, INC.
RAPID OCEAN CARRIERS INC. MILLENIUM III, INC.
IVY NAVIGATION LTD. MILLENIUM IV, INC.
TOPSCALE SHIPPING COMPANY LIMITED MILLENIUM V, INC.
CONIFER SHIPPING COMPANY LIMITED MILLENIUM VI, INC.
MILLENIUM ALEKSANDER, INC. MILLENIUM VII, INC.
MILLENIUM ELMAR, INC. MILLENIUM YAMA, INC
MILLENIUM AMETHYST, INC. MILLENIUM MAJESTIC, INC.
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands 4412 N/A
Republic of Liberia 4412 N/A
Republic of Liberia 4412 N/A
Republic of Liberia 4412 N/A
Republic of Cyprus 4412 N/A
Republic of Cyprus 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
Cayman Islands 4412 N/A
(State or Other (Primary Standard
Jurisdiction of Industrial (I.R.S. Employer
Incorporation Classification Identification Nos.)
or Organization) Code Number)
c/o Ugland House
South Church Street
Grand Cayman, Cayman Islands
345-949-8066
(Address, including zip code, and
telephone number, including area code,
of principal executive offices of
Millenium Seacarriers, Inc.
Kylco Maritime, Inc.
645 Fifth Avenue, Suite 907
New York, New York 10022
212-759-8382
(Name, address, including zip code, and
telephone number, including
area code, of agent for service of
Millenium Seacarriers, Inc.)
------------------
Copies to:
Lauris G. L. Rall Vassilios M. Livanos
Charles A. Dietzgen Millenium Seacarriers, Inc.
Thacher Proffitt & Wood c/o P.O. Box 309, Ugland House
Two World Trade Center South Church Street
New York, New York 10048 Grand Cayman, Cayman Islands
212-912-7400 345-949-8066
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
| | Proposed maximum | Proposed maximum |
Title of each class of | Amount to | offering price | aggregate offering | Amount of
securities to be registered | be registered | per Note | price | Registration Fee
- - - - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12% First Priority Ship Mortgage Exchange Notes | $100,000,000 | 100% | 100,000,000 | $29,500
- - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Guarantees of the First Priority Ship
Mortgage Exchange Notes $100,000,000 | (1) (1) (1)
====================================================================================================================================
</TABLE>
(1) No additional consideration for the Guarantees will be paid by purchasers of
the First Priority Ship Mortgage Exchange Notes. Pursuant to Rule 457(n) under
the Securities Act of 1933, no separate fee is payable to with respect to the
Guarantees.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS
Subject to Completion , 1998
----------
Offer for all outstanding
12% First Priority Ship Mortgage Notes Due 2005
($100,000,000 principal amount at maturity outstanding)
in Exchange for
12% First Priority Ship Mortgage Exchange Notes Due 2005 of
MILLENIUM SEACARRIERS, INC.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
,199 unless extended.
- - - - - - --------- --
Interest payable January 15 and July 15 Due July 15, 2005
Millenium Seacarriers, Inc., a Cayman Islands company ("Millenium"), and
each of the subsidiaries of Millenium (the "Subsidiary Guarantors" and, together
with Millenium, the "Company") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal," which together with this Prospectus
constitute the "Exchange Offer"), to exchange up to $100,000,000 in aggregate
principal amount at maturity of its registered 12% First Priority Ship Mortgage
Exchange Notes (the "Exchange Notes"), for a like principal amount of its
unregistered 12% First Priority Ship Mortgage Notes (the "Existing Notes";
together with the Existing Notes, the "Notes"), of which an aggregate principal
amount at maturity of $100,000,000 is outstanding. The form and terms of the
Exchange Notes are identical to the form and terms of the Existing Notes except
that (i) the offer of the Exchange Notes will be registered under the Securities
Act of 1933, as amended (the "Securities Act"), and therefore the Exchange Notes
will not be subject to certain transfer restrictions and (ii) Holders of
Exchange Notes will not be entitled to certain rights of Holders of Existing
Notes under the Registration Rights Agreement relating to the Existing Notes.
The Exchange Offer is being made in order to satisfy certain contractual
undertakings of Millenium and the Subsidiary Guarantors. See "The Exchange
Offer" and "Description of the Exchange Notes."
The Exchange Notes will be fully and unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior secured basis by each of the Subsidiary
Guarantors. The Exchange Notes will initially be secured by a pledge of all the
capital stock of the Subsidiary Guarantors and are expected to be secured
ultimately by first priority ship mortgages on approximately 22 vessels. On the
Original Issue Date (as defined herein) the Company owned five vessels (the
"Existing Vessels") and had executed vessel purchase agreements to acquire
eleven vessels (collectively, the "Committed Vessels"). The Exchange Notes will
also initially be secured by a portion of the proceeds of the offering of the
Existing Notes that have been deposited in an escrow account (the "Escrow
Account") until such amounts are used to acquire the Committed Vessels and up to
approximately six additional vessels that the Company intends to purchase (the
"Additional Vessels" and, together with the Existing Vessels and the Committed
Vessels, the "Mortgaged Vessels"). Amounts remaining on deposit in the Escrow
Account will be released in connection with the acquisition by the Company of
the Committed Vessels and the Additional Vessels upon the satisfaction of
certain conditions. To the extent that, after July 31, 1999, amounts remaining
on deposit in the Escrow Account exceed $5,000,000, Millenium will be required
to redeem as much principal amount of Exchange Notes and untendered Existing
Notes, if any, as can be redeemed with such amounts on deposit at a redemption
price equal to 101% of the Accreted Value (as defined) of such Notes together
with accrued and unpaid interest thereon to the date of such redemption.
The Exchange Notes mature on July 15, 2005 (the "Maturity Date"). Interest
on the Exchange Notes will be deemed to accrue from July 24, 1998 (the "Original
Issue Date") or from the date of the last periodic payment of interest on the
Existing Notes, whichever is later, at a rate of 12% per annum, except that from
January 20, 1999 until consummation of the Exchange Offer interest will be
deemed to accrue at a rate of 12 1/2 %per annum to reflect Additional Interest
(as hereinafter defined). Interest on the Exchange Notes is payable on January
15 and July 15 of each year, commencing January 15, 1999 (each, a "Payment
Date").
The Exchange Notes will be redeemable at the option of the Company in whole
or in part at the prices set forth herein, plus any accrued and unpaid interest
to the date of redemption, at any time on or after July 15, 2003, or earlier if
the Company becomes subject to withholding taxes on any amounts payable under
the Exchange Notes as a result of changes in the laws of the Cayman Islands,
Liberia or Cyprus. Upon an Event of Loss (as defined) with respect to a
Mortgaged Vessel and upon the sale of a Mortgaged Vessel, the Exchange Notes are
subject to redemption, subject to certain conditions, at the redemption prices
set forth herein. In addition, prior to July 15, 2001, the Company may, at its
option, redeem up to 35% of the principal amount at maturity of the Exchange
Notes at the redemption price set forth herein with the proceeds of and within
60 days following one or more Public Equity Offerings (as defined) if at least
$65,000,000 of the principal amount at maturity of the Exchange Notes and
untendered Existing Notes, if any, remains outstanding and is held, directly or
indirectly, by persons other than the Company and its Affiliates (as defined)
after each such redemption. In addition, upon the occurrence of a Change of
Control (as defined), the Company will be required to make an offer to
repurchase the Exchange Notes at a price equal to 101% of the Accreted Value
thereof, together with accrued and unpaid interest thereon to the date of
repurchase. On the Original Issue Date, the Collateral (as defined) consisted of
five Mortgaged Vessels and the initial deposit in the Escrow Account. See
"Description of the Exchange Notes."
<PAGE>
The Exchange Notes, the untendered Existing Notes, if any, and the
Subsidiary Guarantees will rank senior in right of payment to all existing and
future subordinated indebtedness of, and pari passu with all senior indebtedness
of, Millenium and the Subsidiary Guarantors, respectively.
The Company will accept for exchange any and all Existing Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
, 199 , unless extended (as so extended, the "Expiration Date").
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. See "The Exchange Offer."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by a
Holder who is not an "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Holder
is acquiring the Exchange Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. However, the
staff of the Commission has not considered the Exchange Offer in the context of
a no-action letter addressed to the Company, and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as it has in its prior interpretations. Persons who desire to
exchange Existing Notes in the Exchange Offer must represent to the Company,
among other things, that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal accompanying this Prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, it will make this
Prospectus, as supplemented or amended, available to any broker-dealer for use
in connection with any resale. See "Plan of Distribution."
----------------
For a discussion of certain factors that should be considered in connection with
an investment in the Exchange Notes, see "Risk Factors" beginning on page 14.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is , 1998
---------
No public market has existed for the Exchange Notes before the Exchange
Offer. The Company currently does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system, and no active public market for the Exchange Notes is
currently anticipated. There will be no proceeds to the Company from this
Exchange Offer. The Company will pay all expenses incident to the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
The Existing Notes were sold by Millenium, on July 24, 1998, in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Existing Notes
were subsequently placed with qualified institutional buyers in reliance upon
Rule 144A under the Securities Act and in offshore transactions in compliance
with Rule 903 or Rule 904 of Regulation S of the Securities Act. Accordingly,
the Existing Notes may not be reoffered, resold or otherwise transferred in the
United States unless registered under the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Existing Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered Existing
Notes could be adversely affected. Following consummation of the Exchange Offer,
the Holders of Existing Notes will continue to be subject to the existing
restrictions upon transfer
-ii-
<PAGE>
thereof and the Company generally will have no further obligations to such
Holders to provide for the registration under the Securities Act of the Existing
Notes held by them. See "The Exchange Offer--Consequences of Failure to
Exchange."
The Exchange Notes issued pursuant to this Exchange Offer initially will be
issued in the form of a global Exchange Note, which will be deposited with, or
on behalf of, The Depository Trust Company ("DTC") and registered in its name or
in the name of Cede & Co., its nominee. Beneficial interests in the global
Exchange Note representing the Exchange Notes will be shown on, and transfers
thereof will be effected through, records maintained by DTC and its
participants. After the initial issuance of the global Exchange Note, Exchange
Notes in certificated form may be issued in exchange for the global Exchange
Note on the terms set forth in the Indenture. See "Book Entry-Delivery and
Form."
THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS (THE "PROSPECTUS") IS NOT
DIRECTED TO, NOR WILL THE COMPANY ACCEPT ANY TENDER FOR EXCHANGE FROM, ANY
PERSON IN ANY JURISDICTION IN WHICH PARTICIPATION IN SUCH EXCHANGE OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY EXCHANGE MADE
PURSUANT HERETO SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION SET FORTH HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
Millenium's registered offices are located at the offices of
Maples and Calder, P.O. Box 309, George Town, Grand Cayman, Cayman Islands.
Each of Millenium II, Inc., Millenium III, Inc., Millenium IV, Inc.
Millenium V, Inc., Millenium VI, Inc., Millenium VII, Inc.,
Millenium Aleksander, Inc., Millenium Elmar, Inc.,
Millenium Yama, Inc, Millenium Amethyst, Inc. and
Millenium Majestic, Inc. has its registered
office at the offices of Maples and Calder,
P.O. Box 309, George Town, Grand Cayman,
Cayman Islands.
Each of Oakmont Shipping & Trading Limited, Rapid Ocean Carriers
Inc., and Ivy Navigation Ltd. has its registered
office at c/o 80 Broad Street, Monovia, Liberia.
Each of Topscale Shipping Company Limited and Conifer Shipping Company
Limited has its registered offices at c/o Andreas P.
Demetriades & Associates, P.O. Box 4533, Nicosia, Cyprus
----------------
ENFORCEABILITY OF CIVIL LIABILITIES
Millenium is incorporated in the Cayman Islands, and the Subsidiary
Guarantors are incorporated in Liberia, Cyprus or the Cayman Islands. Certain of
the officers and directors of Millenium and the Subsidiary Guarantors reside
outside the United States and all the assets of Millenium and the Subsidiary
Guarantors are located outside the United States. As a result, it may be
difficult for investors to effect service of process upon such persons in the
United States or to enforce against Millenium, any Subsidiary Guarantor or such
persons in United States courts, judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the
federal securities laws of the United States. Millenium and each of the
Subsidiary Guarantors has designated Kylco Maritime (USA), Inc., 645 Fifth
Avenue, New York, New York 10022, as its agent for service of process in any
action brought against any of them under the securities laws of the United
States with respect to the offering of the Notes, the Subsidiary Guarantees, and
the indenture relating to the Notes (the "Indenture").
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including, without limitation,
such statements under "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
located elsewhere herein, regarding the financial position and capital
expenditures of the Company are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from such expectations ("Cautionary Statements") are disclosed in
this Prospectus, including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus and/or under "Risk
Factors." All subsequent written or oral forward-looking statements attributable
to the Company or persons acting on behalf of the Company are expressly
qualified in their entirety by the Cautionary Statements.
-iii-
<PAGE>
AVAILABLE INFORMATION
Notwithstanding that Millenium may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") applicable to a "foreign private
issuer" (as such term is defined in Rule 3b-4 under the Exchange Act), Millenium
shall file with the Commission and furnish to the Trustee, Holders and
prospective Holders, upon request, (i) commencing with respect to the fiscal
year ended December 31, 1998, within 120 days after the end of each fiscal year,
an annual report on Form 20-F (or any successor form) containing the information
required to be contained therein for such fiscal year, and (ii) commencing with
respect to the fiscal quarter ended September 30, 1998, within 45 days after the
end of each of the first three quarters in each fiscal year, quarterly reports
on Form 6-K consisting of unaudited financial statements (including a balance
sheet and statement of income, changes in stockholders' equity and cash flows)
and Management's Discussion and Analysis of Financial Condition and Results of
Operations for and as of the end of each of such quarters (with comparable
financial statements for such quarter of the immediately preceding fiscal year).
Copies of the Indenture, the Registration Rights Agreement, the Security
Agreements (as defined) and any other document referred to herein can be
obtained without charge by any recipient of this Prospectus by contacting
Millenium Seacarriers, Inc. c/o P.O. Box 309, George Town, Grand Cayman, Cayman
Islands. Additionally, such documents may be accessed via the Commission's
Internet Web site at http://www.sec.gov.
SHIPPING INDUSTRY INFORMATION
Certain market data and industry information and data used throughout this
Prospectus were obtained from SSY Consultancy and Research Limited of London
("SSY"), Drewry Shipping Consultants Ltd. ("Drewry"), Shipping Intelligence Inc.
("Shipping Intelligence") and Maritime Research Inc. ("Maritime Research Inc."
and, collectively with SSY, Drewry and Shipping Intelligence, the "Industry
Sources"). SSY maintains a database of the world's drybulk carrier fleets
(vessels of 10,000 deadweight tons ("dwt") and over) that includes data on fleet
sizes, orderbooks, scrapping rates, laid-up tonnage and freight rates. The data
has been collected from sources including shipowners and shipbuilders. The
database excludes vessels that do not carry cargoes in bulk and vessels engaged
exclusively in carriage on the Great Lakes of the United States. Drewry
maintains a database covering many aspects of the shipping industry that is
utilized by Drewry's research team of market analysts, economists and strategic
planners. Shipping Intelligence maintains a database on vessel sales history and
period time charter history. Maritime Research Inc. utilizes its own database of
reported worldwide fixture reports collected from its extensive global shipping
sources developed over the past 45 years. The Industry Sources have advised the
Company that (i) certain industry information set forth herein is based on
estimates or subjective judgments in circumstances where data for actual freight
market transactions either does not exist or is not publicly available and,
consequently, there can be no assurance that such data reflects actual industry
and market experience, (ii) the published information of other maritime data
collection experts may differ from the information contained herein, (iii) while
each of the Industry Sources have taken reasonable care in the compilation of
such industry, market, statistical and graphical information and believe it to
be correct, data compilation is inherently subject to limited audit and
validation procedures and (iv) the provision of such information does not
obviate the need to make further appropriate inquiries.
Whenever in this Prospectus the Company or its management expresses its
expectation about future events, such expectations are based upon the experience
of the Company's management team in combination with the data and information
provided by SSY, Drewry, Shipping Intelligence and/or Maritime Research Inc.
-iv-
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information (including the financial
statements and the notes thereto) included elsewhere herein. Unless the context
requires otherwise, references in this Prospectus to the "Company" are
references to Millenium Seacarriers, Inc., and its predecessor businesses and
affiliates, including the Subsidiary Guarantors.
The Company
The Company is an international shipping company that currently owns and
operates a fleet of drybulk carriers, primarily in the 20,000 to 49,999
deadweight ton ("dwt") range ("Handysize drybulk carriers"). The Company has
attracted strong industry partners and equity investors in order to implement an
expansion of its fleet through the acquisition of approximately 17 second hand
Handysize drybulk carriers. On the Original Issue Date, the Company owned five
vessels (the "Existing Vessels") and had executed vessel purchase agreements to
acquire eleven vessels (the "Committed Vessels"). As of the date of this
Prospectus, the Company has acquired eight of the Committed Vessels. The Company
has obtained period time charters for each of the Existing Vessels and Committed
Vessels. Approximately six additional vessels (the "Additional Vessels") are
expected to be acquired and placed on period time charters within six months of
the Original Issue Date.
The Company's senior management has a proven track record of effectively
managing shipping businesses, identifying shipping industry trends and building
fleets through vessel acquisitions. Vassilios Livanos, Chief Executive Officer
and a co-founder of the Company and its predecessor, has spent his 25-year
career in the drybulk sector of the shipping industry. Prior to founding the
Company, Mr. Livanos was president of Kedma Ltd. ("Kedma") in New York where he
expanded Kedma's fleet of four vessels through the acquisition of 20 vessels,
primarily Handysize drybulk carriers. Prior to Kedma, during his 13 years at
Seres Shipping, Inc., Mr. Livanos oversaw the acquisition and construction of
over 150 vessels as technical director. Theotokis Milas, Chief Operating Officer
and a co-founder of the Company and its predecessor, has spent 30 years in the
shipping industry. Prior to founding the Company, while Mr. Milas was at
International Maritime Investors ("IMI"), a vehicle he co-founded to acquire
vessels, IMI acquired a fleet of 16 vessels having an aggregate capacity of 1.35
million dwt and generated substantial returns for its investors. Nicholas
Cotzias, Jr., Chief Financial Officer and a co-founder of the Company and its
predecessor, has over 15 years experience in the shipping industry and also has
significant experience in the expansion of fleets. Prior to founding the
Company, Mr. Cotzias was general manager and director of Trade and Transport
(UK) Ltd., part of a shipping venture which controlled a fleet that expanded to
over 35 vessels through the acquisition of 19 vessels. The Company's senior
management believes the current downturn in the drybulk carrier shipping cycle
presents an excellent opportunity for the Company to grow and enhance cash flow
by purchasing vessels at attractive prices. The acquisition costs of Handysize
drybulk carriers are at their lowest levels in ten years, in significant part
due to the recent economic crisis in Asia.
The Company's strategy has been and will continue to be to generate
revenues under long-term contracts using period time charters for all of its
vessels in order to maximize vessel utilization and enhance stability of cash
flow and earnings. For example, over the last five years, all revenues relating
to the Existing Vessels were derived from a series of one-year time charter
contracts with either Cementos Mexicanos ("Cemex") or Clipper Group ("Clipper"),
yielding an average utilization rate for its vessels of over 98%. The current
charters with these customers continue through at least February 1999, at which
time the Company will seek a further renewal of the charters. The Company is
chartering three of the Committed Vessels to Clipper for a period of at least 12
months, four to FedNav International Limited ("FedNav"), a major international
shipping company, for a period of at least two and one half years and one to Hai
Sun Hup Shipping ("HSH"), a Singapore-based conglomerate, for a period of at
least 12 months. In addition, two of the Committed Vessels are being acquired by
the Company subject to their existing charters with Tschudi & Eitzen Group
("T&E"), an integrated shipping company, and the Company has obtained a
commitment from FedNav to charter the remaining Committed Vessel. The Company
will acquire the Additional Vessels subject to either existing time charters or
newly negotiated time charters. In addition, major companies such as Cargill,
Continental Grain, Garnac Grain, Pillsbury, Kerr McGee, Marcona, Van Ommeren,
Armada and Ispat have current or previous charter relationships with the Company
or its management.
The Company has a proven ability to serve its charter customers in niche
trades which require specialized vessels or expertise and tend to generate
premium revenue rates as well as stable, long-term relationships. For example,
two of the Existing Vessels have traded forest products from the Amazon which
requires specially configured and geared vessels and navigational expertise. The
five Committed Vessels chartered to FedNav for initial terms of up to three and
one half years are ocean-going vessels that are capable of trading in the St.
Lawrence Seaway and Great Lakes region, as well as other technically demanding
regions. There are currently only 143 Handysize drybulk carriers that are at
least 25,000 dwt and under 18 years of age in the world capable of this trade.
As a result of its demonstrated expertise in specialized trades, the Company
typically is able to obtain long-term or recurring charters for its vessels and
believes it has generally achieved premium time charter rates.
The Company has engaged Millenium Management, Inc. ("MMI"), a Cayman
Islands company and the sole shareholder of Millenium, to provide certain
commercial and technical management services to the Company at current market
rates. MMI has subcontracted with Kylco
<PAGE>
Maritime Limited ("Kylco Greece") and Kylco Maritime (USA), Inc. ("Kylco USA"
and, together with Kylco Greece, "KYLCO") to provide management services.
Messrs. Livanos, Milas and Cotzias are officers of KYLCO. Kylco Greece and Kylco
USA collectively employ approximately 30 individuals. KYLCO currently manages or
sub-manages 18 vessels, five of which comprise the Existing Vessels, eight of
which comprise Committed Vessels and five of which are owned by third parties
and are not expected to be acquired by the Company. Recently, KYLCO and, through
KYLCO, the Existing Vessels received certification under the International
Maritime Organization's ("IMO") International Management Code for the Safe
Operation of Ships and Pollution Prevention (the "ISM Code") by successfully
completing audits conducted by Det Norske Veritas, a leading classification
society.
The Handysize Drybulk Carrier Industry
The Company believes the Handysize drybulk carrier sector is one of the
most attractive sectors in the shipping industry due to the diverse demand for
these vessels as compared to the larger, gearless drybulk carrier sector.
Handysize drybulk carriers are versatile, single deck ships that transport
unpacked cargo, which is poured, tipped or placed through hatchways into the
hold of the vessel. Their size, dimension and self-sustaining cargo gear enable
Handysize drybulk carriers to access geographic markets which larger and
gearless vessels cannot service and respond to the widest range of trade
movements. Handysize drybulk carriers carry a wide variety of cargoes, including
agricultural products, sugar, salt, minerals, phosphates, bauxite and alumina,
forest products, petcoke, cement, steel products, scrap metal and pig iron, as
well as cargoes generally carried by larger, gearless drybulk carriers, such as
coal, iron ore and grain. According to SSY, as of December 31, 1997, the world
fleet of Handysize drybulk carriers was comprised of 3,172 vessels with an
aggregate capacity of approximately 105.5 million dwt.
Partly due to the recent economic situation in Asia, freight rates and
vessel values for all drybulk carriers (including the Handysize drybulk carrier
segment) are currently at their ten-year lows. According to Shipping
Intelligence, the average purchase price of a 15-year old 25,000 dwt Handysize
drybulk carrier over the past ten years is approximately 31% higher than the
current purchase price for such a vessel. Historically, cyclical downturns in
this sector have resulted in the rationalization of supply through increased
scrapping of older, less efficient vessels and limited fleet replacement by
newbuildings. According to SSY, as of March 1998, the time charter rate for a
20,000-29,999 dwt Handysize drybulk carrier was $5,500 per day compared to the
last peak of $9,250 per day in 1995, and the ten-year average of $7,461 per day.
The current cyclical downturn in this sector has led to accelerated scrappings
as of June 1998, which the Company believes will continue through the remainder
of 1998 and will limit the growth of the Handysize drybulk carrier fleet through
1998. Despite the currently depressed freight rates and vessel values for all
drybulk carriers, the Handysize drybulk carrier sector currently commands
significantly higher 12-month period time charter rates than those for the
larger, gearless drybulk carrier sector due to the versatility of Handysize
drybulk carriers and the wide range of cargoes they transport.
Business Strategy
The Company's strategy is to expand its operations through the purchase of
high quality second hand drybulk carriers at attractive vessel prices and to
provide superior transportation services to its charterers. Key elements of this
strategy include:
Generating Stable Cash Flows Using Period Time Charters. Period time
charters provide for an agreed daily charter hire rate during the contract
period, which is generally 12 months. The Company believes that period time
charters provide more stable revenues and cash flows as well as better vessel
utilization than spot charters, which are generally contracts for single voyages
(typically of 15 to 30 days duration). In addition, the Company believes that
focusing on period time charters with a targeted group of charterers allows it
to provide superior customer-oriented service, thereby distinguishing itself
from other drybulk carrier operators, which in turn may allow the Company to
grow more steadily than other operators in this sector. The Company has period
time charters for all Existing Vessels and Committed Vessels and intends to
obtain time charters for the Additional Vessels. The Company has obtained
attractive period time charters for the Committed Vessels (of up to three and
one half years for certain of the Committed Vessels) despite current market
conditions.
Building the Company's Fleet by Taking Advantage of Attractive Prices. The
Company believes it now has the opportunity to purchase additional vessels at
virtually the lowest prices in the past decade and thereby generate superior
returns on its investments. The Company has inspected over 30 other vessels
during the past six months and continues to review additional opportunities. As
part of its long-term strategy to continue to grow through vessel acquisitions,
the Company plans to acquire vessels periodically at attractive prices. The
Company plans to actively manage its fleet by reinvesting earnings and proceeds
of periodic sales of the Mortgaged Vessels in order to grow and renew its fleet.
In addition, the Company will consider raising additional private and public
equity capital to support further fleet expansion.
Focusing on Handysize Drybulk Sector. The Company believes that focusing on
the Handysize drybulk sector of the shipping industry will generate the
following competitive advantages:
Marketing Advantages to Enhance Revenues. Focusing on the Handysize drybulk
sector of the shipping industry will enable the Company to identify and respond
to its market and customer needs. As a customer-oriented service provider, the
Company can use
-2-
<PAGE>
this market and customer information to develop creative solutions for its
clients, including acquiring additional vessels or reconfiguring existing
vessels within its fleet and developing customized trade routes. For
example, in response to the needs and concerns of Cemex, the Company
developed a combined, vessel-specific trade for the carriage of cement and
petcoke, leading to recurring service contracts with this charterer.
Operating Efficiencies to Reduce Costs. The Company is generally able
to achieve significant cost efficiencies as a result of operating a fleet
focused in one sector. These include more efficient drydock service, better
rates for insurance and spares and purchasing efficiencies from suppliers.
In addition, the Existing Vessels and Committed Vessels include sister
vessels that have similar design characteristics, allowing the Company to
benefit from operating, maintenance and crew efficiencies.
Obtaining Better Returns with a Second Hand Fleet. The Company intends to
acquire and operate second hand vessels between 10 and 18 years of age,
consistent with management's operating experience. The Company believes the
values and charter rates for vessels in this age group enable it to obtain
superior returns on invested capital when compared to potential returns on
capital invested in newbuildings. According to SSY, as of June 1998, the
purchase price for a 15-year old 28,000 dwt Handysize drybulk carrier was
approximately 33% that of a newbuilding and the revenue obtained by a one-year
time charter for such vessel was approximately 75% that for a newbuilding.
-3-
<PAGE>
Transactions
In connection with the issuance of the Existing Notes, the Company has
effected a series of transactions (the "Transactions") consisting of (i) the
issuance of the Existing Notes, (ii) the acquisition by the Company of the
Existing Vessels and of certain of the Committed Vessels (with the remaining
Committed Vessels expected to be acquired by the end of September 1998), (iii)
the Equity Contribution (as defined) and (iv) the establishment of the Working
Capital Facility (as defined).
The following sets forth the sources and uses of the proceeds of the
Transactions (amounts in millions):
Sources of Proceeds of Transactions:
Proceeds from the issuance of the Existing Notes $ 96.6
Total Equity Contribution 24.0
------
Total $120.6
======
Uses of Proceeds of Transactions:
Existing Vessels:
Repayment of indebtedness $ 12.9
Equity issued for the Existing Vessels 4.0
Acquisition of Committed Vessels(a) 66.7(b)
Escrow Account(c) 31.4
Fees and expenses 5.6
-----
Total $120.6
======
(a) As of the date of this Prospectus, eight of the Committed Vessels have been
acquired. Pending actual acquisition of the remaining Committed Vessels,
the funds to effect the purchase of these vessels will be held in the
Escrow Account.
(b) Includes $5.9 million of contributed vessel equity (based on Appraised
Values) from Clipper and ESCO (as defined) and $7.0 million of vessel
equity (based on Appraised Values) with respect to the Millenium Leader,
the Millenium Hawk, the Millenium Eagle, the Millenium Osprey, the
Millenium Falcon and the Millenium Condor. See "Certain Transactions--New
Equity Contribution."
(c) Amounts held in the Escrow Account are available for the purchase of
Additional Vessels and to make deposits and pay transaction fees and
expenses in connection with the Committed Vessels and the Additional
Vessels and, if necessary, to make vessel upgrades on the Committed Vessels
and the Additional Vessels.
-4-
<PAGE>
The Vessels
The following table indicates the age, capacity, charter status and
appraised value of the Existing Vessels and the Committed Vessels.
<TABLE>
<CAPTION>
Appraised
Year Capacity Chartered Daily Charter Value
Name of Vessel Built (dwt) Charterer Until Hire Rate (thousands)
- - - - - - -------------- ------- ------- --------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Existing Vessels
Monica Marissa ........ 1973 55,057(a) Cemex February 1999(b) $ 7,250 $ 3,625(d)
Clipper Harmony ....... 1978 16,711 Clipper February 2000 7,500 5,175(d)
Clipper Golden Hind ... 1978 16,560 Clipper February 1999 7,500 4,375(d)
Clipper Pacific ....... 1976 7,923 Clipper March 1999 4,300 1,675(d)
Clipper Atlantic ...... 1975 7,923 Clipper February 1999 4,300 1,625(d)
-------
Total Existing Vessels................................................................................. 16,475
-------
Committed Vessels
Millenium Aleksander* ... 1988 52,650(a) T&E June 1999(c) 7,000 8,688(e)
Millenium Elmar* ........ 1987 52,650(a) T&E June 1999(c) 7,000 8,125(e)
Millenium Leader ........ 1984 37,489 HSH September 1999 6,800 8,100(f)
Millenium Hawk* ......... 1984 28,791 FedNav March 2002 7,000 7,113(f)
Millenium Eagle ......... 1983 28,788 FedNav March 2002 7,000 6,813(f)
Millenium Osprey ........ 1984 28,786 FedNav March 2002 7,000 7,113(f)
Millenium Falcon ........ 1981 27,048 FedNav March 2001 7,000 5,613(f)
Millenium Condor ........ 1981 27,036 FedNav March 2001 7,000 5,613(f)
Millenium Amethyst ...... 1978 23,563 Clipper July 1999 5,275 3,000(e)
Millenium Yama .......... 1979 23,538 Clipper July 1999 5,275 3,500(e)
Millenium Majestic ...... 1979 17,152 Clipper August 1999 5,200 3,050(g)
Total Committed Vessels.................................................................................. 66,728
--------
Total Existing and Committed Vessels................................................................. $ 83,203
========
</TABLE>
* Not acquired as of the date of this Prospectus.
- - - - - - --------------------------
(a) Although the vessel capacity is greater than 49,999 dwt, it is considered a
Handysize drybulk carrier.
(b) The time charter for the Monica Marissa provides that the charterer
thereunder has the right to renew such charter at the specified rates set
forth therein.
(c) The Company may, at its option, cancel these charters at any time after
December 1998.
(d) Appraised value is based on the average of two appraisals, each performed
by a Designated Appraiser (as defined in "Description of the Exchange
Notes") in February 1998 and in June 1998. Appraised value gives effect to
the value of the time charter for the relevant vessel.
(e) Appraised value is based on the average of two appraisals completed in
February 1998, each performed by a Designated Appraiser. Appraised values
were determined on a charter-free basis.
(f) Appraised value is based on the average of two appraisals, each completed
by a Designated Appraiser in June 1998. Appraised value gives effect to the
value of the time charter for the relevant vessel.
(g) Appraised value is based on the average of two appraisals completed in June
1998, each performed by a Designated Appraiser.
As of June 1998, the Existing Vessels and Committed Vessels had an
aggregate appraised value, giving effect to the values of their time charters,
of $82.9 million, based on the appraisal performed by a Designated Appraiser.
-5-
<PAGE>
Ownership
The three senior members of management have a significant equity ownership
in the Company, through their beneficial equity interest in MMI. Other
stockholders and sponsors of MMI include Millenium Investment, Inc. ("Millenium
Investment"), Millenium Advisors, L.L.C. ("Millenium Advisors"), Estonian
Shipping Company Limited ("ESCO") and Clipper.
Stanton Capital Corporation ("Stanton Capital"), a New York-based
investment firm, has acted as equity sponsor on behalf of Millenium Investment
in connection with the formation and structuring of MMI and Millenium
Investment's equity investment in MMI and is affiliated with Millenium Advisors.
Since its formation in 1995 until the Original Issue Date, Stanton Capital has
completed investments with an aggregate transaction value exceeding $400
million. In July 1997, Stanton Capital arranged the consortium of investors that
acquired 70% of the equity of ESCO from the Republic of Estonia.
ESCO is the successor to one of the largest merchant marine fleets in the
Former Soviet Union, currently owning over 40 cargo vessels (including over 25
bulker and general cargo vessels), most of which operate in the Baltic Sea,
between Northern Europe, Scandinavia and the Baltic countries. An affiliate of
Stanton Capital serves as financial advisor to ESCO, and an affiliate of Stanton
Capital will be actively involved as financial advisor to Millenium.
Clipper is a 25-year old international shipping consortium that operates
over 100 vessels. It is comprised of shipowning, commercial management, trading,
agency, stevedoring and investment companies. Clipper currently includes over 30
companies with offices throughout the world. Clipper has built its reputation by
establishing and maintaining charter relationships with major industry
participants. Many of Clipper's clients rely on its services rather than
creating and supporting "in house" transportation services. The Company has
enjoyed a long and mutually beneficial relationship with Clipper.
Millenium's registered offices are located at the offices of Maples and
Calder, P.O. Box 309, George Town, Grand Cayman, Cayman Islands.
Kylco USA's offices are located at 645 Fifth Avenue, New York, New York
(telephone: 212-759-8382), and Kylco Greece's offices are located at 26 Skouze
Street, Piraeus, Greece.
-6-
<PAGE>
The Exchange Offer
Summary of Terms of the Exchange Offer
The Exchange Offer......... Up to $100,000,000 aggregate principal amount at
maturity of 12% First Priority Ship Mortgage
Exchange Notes Due 2005 (the "Exchange Notes")
will be issued in minimum denominations of $1,000
and integral multiples of $1,000 in excess
thereof. Subject to such minimum denominations,
$1,000 principal amount at maturity of Exchange
Notes is offered in exchange for each $1,000
principal amount at maturity of First Priority
Ship Mortgage Notes Due 2005 (the "Existing
Notes"). As of the date of this Prospectus,
Existing Notes representing 100,000,000 aggregate
principal amount at maturity are outstanding. The
form and terms of the Exchange Notes and the
Existing Notes are identical, except that (i) the
offer of the Exchange Notes will be registered
under the Securities Act and therefore the
Exchange Notes will not be subject to certain
transfer restrictions and (ii) Holders of Exchange
Notes will not be entitled to certain rights of
Holders of the Existing Notes under the
Registration Rights Agreement.
Based on interpretations by the Commission's staff
set forth in no-action letters issued to third
parties unrelated to the Company, the Company
believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Existing
Notes may be offered for resale, resold or
otherwise transferred by any Holder (other than
any such Holder or such other person (i) that is
an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act or (ii) that
is a broker-dealer who acquired such Existing
Notes directly from The Company (or any affiliate
thereof)), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) the Exchange
Notes are acquired in the ordinary course of
business of the Holder and (ii) the Holder is not
engaged in and does not intend to engage in a
distribution of the Exchange Notes and has no
arrangement or understanding with any person to
participate in the distribution of the Exchange
Notes. The Commission, however, has not considered
the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the
staff of the Commission would make a similar
determination with respect to the Exchange Offer
as in such other circumstances. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
Each broker-dealer that receives Exchange Notes
for its own account in exchange for Existing
Notes, where those Existing Notes were acquired by
the broker-dealer as a result of its market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of those Exchange
Notes. See "Plan of Distribution."
Registration Rights
Agreement.................. The Existing Notes were sold by Millenium on July
24, 1998 in a private placement. In connection
with the sale of the Existing Notes, Millenium and
the Subsidiary Guarantors entered into a
Registration Rights Agreement for the benefit of
the purchasers thereof (the "Registration Rights
Agreement"), under which the Company agreed to use
its best efforts to effect the Exchange Offer. See
"The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "Description of the Exchange
Notes--Registration Rights." Pursuant to the
Registration Rights Agreement, the Company is
required to file a Registration Statement for a
continuous offering pursuant to Rule 415 under the
Securities Act in respect of the Existing Notes
under certain circumstances, including if existing
Commission interpretations are changed such that
the Exchange Notes received by Holders in the
Exchange Offer are not or would not be, upon
receipt, transferable by each such Holder (other
than an affiliate of the Company) without
restriction under the Securities Act. This
Prospectus is prepared in connection with the
Company's compliance with such registration
requirement. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "Description of
the Exchange Notes--Registration Rights."
-7-
<PAGE>
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 199 (or longer
if required by applicable law) unless extended by
the Company in its sole discretion. Any Existing
Notes not accepted for exchange for any reason
will be returned without expense to the tendering
Holder thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
Withdrawal................. The tender of Existing Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the
Expiration Date.
Interest on the
Exchange Notes........... Interest on each Exchange Note will be deemed to
accrue from July 24, 1998 (the date of issuance of
the Existing Notes) or from the date of the last
periodic payment of interest on the Existing
Notes, whichever is later.
Additional Interest........ If the Exchange Offer is not consummated by
January 20, 1999 (a "Registration Default"),
Additional Interest will accrue on the Existing
Notes from such date to the date the Exchange
Offer is consummated, at a rate of 0.50% of the
principal amount thereof per annum, which
Additional Interest is payable semiannually in
arrears on each Payment Date. Interest on the
Exchange Notes will accrue at a rate of 121/2% per
annum to reflect the 0.50% of Additional Interest
until such Registration Default has been cured.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer--Conditions." The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Existing Notes being
tendered for exchange.
Procedures for Tendering
Existing Notes........... Each Holder of Existing Notes who desires to
accept the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a copy thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise deliver
the Letter of Transmittal or the copy, together
with the Existing Notes and any other required
documentation, to the Exchange Agent at the
address set forth herein. Persons holding Existing
Notes through DTC and wishing to accept the
Exchange Offer must do so pursuant to DTC's
Automated Tender Offer Program ("ATOP"), by which
each tendering participant will agree to be bound
by the Letter of Transmittal. By executing or
agreeing to be bound by the Letter of Transmittal,
each Holder will represent to the Company that,
among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
Holder of the Existing Notes, (ii) the Holder is
not engaging in and does not intend to engage in a
distribution of such Exchange Notes, (iii) the
Holder has no arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes, (iv) the Holder is not an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company and (v)
if such Holder is a broker-dealer, that it
acquired the Existing Notes as a result of market
making activities or other trading activities.
Acceptance of Existing
Notes and Delivery of
Exchange Notes........... The Company will accept for exchange any and all
Existing Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
-8-
<PAGE>
Exchange Agent............. The First National Bank of Maryland of Baltimore,
Maryland is serving as Exchange Agent in
connection with the Exchange Offer.
U.S. Tax Considerations.... The exchange pursuant to the Exchange Offer will
not be a taxable event for U.S. federal income tax
purposes. See "Certain United States Federal
Income Tax Consequences."
Effect of Not Tendering.... Existing Notes that are not tendered or that are
not properly tendered will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. Upon completion of the Exchange Offer,
the Company generally will have no further
obligation to provide for the registration under
the Securities Act of such Existing Notes. See
"Risk Factors--Exchange Offer Procedure."
Summary of Terms of the Exchange Notes
Exchange Notes Offered..... $100,000,000 aggregate principal amount at
maturity of 12% First Priority Ship Mortgage
Exchange Notes Due 2005 ($96.6 million aggregate
initial Accreted Value).
Issuer..................... Millenium Seacarriers, Inc.
Trustee.................... The First National Bank of Maryland.
Maturity Date.............. July 15, 2005.
Interest Payment Dates January 15 and July 15 of each year, commencing
January 15, 1999.
Special Mandatory Redemption
for Escrowed Funds....... As of the Original Issue Date, Millenium deposited
in the Escrow Account approximately $78.1 million
of the proceeds of the offering of the Existing
Notes (plus $7.1 million representing the cash
portion of the Equity Contribution), of which no
more than $53.8 million is permitted to be
released in connection with paying the purchase
price for the Committed Vessels. As of the date of
this Prospectus, approximately $40.6 million has
been released from the Escrow Account in
connection with the acquisition of eight Committed
Vessels and to make deposits and pay related fees
and expenses. The balance of funds on deposit in
the Escrow Account will be released in connection
with the acquisition by the Company of the
remaining Committed Vessels, the Additional
Vessels and to make related vessel upgrades and
deposits. To the extent that, after July 31, 1999,
amounts on deposit in the Escrow Account exceed $5
million, Millenium will be required to redeem as
much principal amount of Notes as can be redeemed
with such amounts on deposit at a redemption price
equal to 101% of the Accreted Value of such Notes
together with accrued and unpaid interest thereon
to the date of such redemption.
Optional Redemption........ The Exchange Notes and the untendered Existing
Notes, if any, will be redeemable at the option of
Millenium in whole or in part, at the redemption
prices set forth herein plus accrued interest to
the date of redemption, at any time following July
15, 2003, or earlier if Millenium becomes liable
to pay certain amounts as a result of the
imposition of withholding taxes by the Cayman
Islands, Liberia or Cyprus. In addition, prior to
July 15, 2001, Millenium may, at its option,
redeem up to 35% of the principal amount at
maturity of the Exchange Notes and the untendered
Existing Notes, if any, at the redemption price
set forth herein from the net proceeds of one or
more Public Equity Offerings; provided, however,
that at least $65 million aggregate principal
amount at maturity of the Exchange Notes and the
untendered Existing Notes, if any, remains
outstanding and is held, directly or indirectly,
by persons other than Millenium and its
Affiliates, after each such redemption and that
each such redemption is made no more than 60 days
following the related Public Equity Offering.
-9-
<PAGE>
Redemption upon the Loss
of a Mortgaged Vessel.... Upon an Event of Loss (as defined) with respect to
a Mortgaged Vessel, Millenium must either, at the
option of Millenium, (a) redeem the Exchange Notes
and the untendered Existing Notes, if any, in
whole or in part, in an aggregate Accreted Value
equal to the lesser of (i) the Vessel Percentage
(as defined) applicable to such Mortgaged Vessel
multiplied by the Accreted Value of the Notes then
outstanding, at a redemption price equal to 100%
of the Accreted Value of such redeemed Exchange
Notes and the untendered Existing Notes, if any,
plus accrued and unpaid interest to such
redemption date and (ii) if no Event of Default
(as defined) shall have occurred and if the Loan
To Value Ratio (as defined) (calculated to include
in the numerator thereof the then outstanding
amount of Indebtedness (as defined) under any
working capital facility to the extent such
Indebtedness is secured by a prior Lien on the
Mortgaged Vessels) is less than 0.8 to 1.0, an
amount equal the net proceeds of such Event of
Loss or (b) if no Event of Default (as defined)
shall have occurred and be continuing, substitute
a Qualified Substitute Vessel (as defined) within
12 months after the receipt of the proceeds from
such Event of Loss of such Mortgaged Vessel.
Redemption upon the Sale
of a Mortgaged Vessel.... Upon the permitted sale of a Mortgaged Vessel (or
the capital stock of a Subsidiary Guarantor that
owns a Mortgaged Vessel), Millenium must either,
at the option of Millenium, (a) redeem the
Exchange Notes and the untendered Existing Notes,
if any, in whole or in part, in an aggregate
Accreted Value equal to (subject to certain
exceptions) the Vessel Percentage applicable to
such Mortgaged Vessel being sold multiplied by the
Accreted Value of the Exchange Notes and the
untendered Existing Notes, if any, then
outstanding, at a redemption price equal to the
sum of (i) the lesser of (x) if no Event of
Default shall have occurred and the Loan To Value
Ratio (calculated to include in the numerator
thereof the then outstanding amount of
Indebtedness under any working capital facility to
the extent such Indebtedness is secured by a prior
lien on the Mortgaged Vessels) is less than 0.8 to
1.0, an amount equal to the net proceeds of such
sale and (y) the greater of (A) 100% of the
Accreted Value of such redeemed Exchange Notes and
the untendered Existing Notes, if any, and (B) (1)
if such redemption date is on or after July 15,
2003, the redemption price then applicable as set
forth herein or (2) if such redemption date is
prior to July 15, 2003, the sum of the then
remaining payments of principal and interest on
such Exchange Notes and the untendered Existing
Notes, if any, through July 15, 2003 and the
redemption price of such Notes on such date and
accrued and unpaid interest thereon, in each case
discounted to their present values to the
redemption date using the Treasury Rate (as
defined) plus 50 basis points and (ii) accrued and
unpaid interest to such redemption date or (b) if
no Event of Default shall have occurred and be
continuing substitute a Qualified Substitute
Vessel within 12 months after the sale of such
Mortgaged Vessel (or capital stock).
Change of Control.......... Upon a Change of Control and subject to certain
conditions, each holder of the Exchange Notes and
the untendered Existing Notes, if any, may require
Millenium to repurchase the Exchange Notes and the
untendered Existing Notes, if any, held by such
holder at 101% of the Accreted Value thereof plus
accrued and unpaid interest to the date of
repurchase.
Subsidiary Guarantees...... The payment by Millenium of the principal of, and
premium and interest on, the Exchange Notes and
the untendered Existing Notes, if any, is fully,
irrevocably and unconditionally guaranteed on a
joint and several senior secured basis by each of
the Subsidiary Guarantors.
Mortgages and Other Security Millenium's obligations in respect of the Exchange
Notes and the untendered Existing Notes, if any,
will be secured by a pledge of all the capital
stock of the Subsidiary Guarantors and by amount
on deposit in the Escrow Account from time to
time. The obligations of each of the Subsidiary
Guarantors pursuant to its respective Subsidiary
Guarantee will be secured by the Mortgage over the
Mortgaged Vessel owned by such Subsidiary
Guarantor.
-10-
<PAGE>
Ranking.................... The Exchange Notes and the untendered Existing
Notes, if any, and the Subsidiary Guarantees will
be senior secured obligations of Millenium and the
Subsidiary Guarantors, respectively, will rank
pari passu in right of payment with all such
future senior indebtedness of Millenium and of the
Subsidiary Guarantors, respectively, and will be
senior in right of payment to all subordinated
indebtedness existing on the Original Issue Date
of the Existing Notes and future subordinated
indebtedness of Millenium and of the Subsidiary
Guarantors, respectively; provided, however, that
pursuant to the Indenture, Millenium may incur up
to $7.0 million of working capital indebtedness
that will be secured by a lien on the Mortgaged
Vessels that will have priority over the lien in
favor of the holders of the Exchange Notes and the
untendered Existing Notes, if any. The Working
Capital Facility Provider (as defined) has made
such a facility available to Millenium. As of the
date of this Prospectus, there are no amounts
outstanding under such working capital facility.
As of the date of this Prospectus, after giving
effect to the issuance of the Exchange Notes and
the Existing Notes and the application of the
proceeds therefrom, Millenium and the Subsidiary
Guarantors have had no senior indebtedness
outstanding other than the Exchange Notes and the
untendered Existing Notes, if any.
Certain Covenants.......... The Indenture contains covenants with respect to
(i) limitations on the incurrence of additional
indebtedness, (ii) limitations on certain
payments, (iii) limitations on restrictions on
distributions from subsidiaries (including the
Subsidiary Guarantors), (iv) limitations on sales
of assets and subsidiary stock, (v) limitations on
liens, (vi) limitations on investments, (vii)
limitations on business activities, (viii)
limitations on sale and leaseback transactions,
(ix) limitations on transactions with affiliates,
(x) requirements for the provision of financial
information, (xi) limitations on mergers,
consolidations and certain purchases of assets,
(xii) impairment of security interests and (xiii)
amendments to security agreements. All these
limitations and prohibitions, however, are subject
to a number of important qualifications.
Additional Amounts......... All payments by Millenium or the Subsidiary
Guarantors in respect of the Exchange Notes and
the untendered Existing Notes, if any, whether of
principal or interest, will be made without
withholding or deduction of any taxes imposed by
or within the Cayman Islands, Cyprus, Liberia or
any jurisdiction in which Millenium or any of the
Subsidiary Guarantors is incorporated or resident
for tax purposes or, in each case, any political
subdivision or taxing authority thereof or
therein, unless such withholding or deduction is
required by law or the interpretation and
administration thereof, in which case, subject to
specified exceptions and limitations, Millenium or
the Subsidiary Guarantors, as the case may be,
will either (i) pay such additional amounts as may
be necessary so that the net amount received by
the holders of the Notes after such withholding or
deduction will not be less than the amount that
would have been received in the absence of such
withholding or deduction or (ii) if payments in
respect of the Exchange Notes and the untendered
Existing Notes, if any, become subject to taxes
imposed by the Cayman Islands, Cyprus or Liberia,
redeem the Notes at 100% of the Accreted Value
thereof, plus accrued and unpaid interest to the
date of such redemption.
Risk Factors
Prospective Investors should carefully consider the information set
forth in this Prospectus and, in particular, the information
set forth under "Risk Factors" in connection with any
investment in the Exchange Notes.
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Summary Combined Financial Information
(in thousands, except ratios and operating data)
The Summary Combined Financial Information set forth below for the Company for
the three years ended December 31, 1995, 1996 and 1997 and as of December 31,
1996 and 1997 has been derived from the Company's audited combined financial
statements and related notes thereto which were prepared in accordance with
United States generally accepted accounting principles. Such combined financial
statements have been audited by Coopers & Lybrand, independent accountants, as
stated in their report included elsewhere in this Prospectus and should be read
in conjunction therewith. The summary combined statement of income data of the
Company set forth below for the two years ended December 31, 1993 and 1994 and
combined balance sheet data as of December 31, 1993, 1994, and 1995 have been
derived from the Company's audited combined financial statements not included in
this Prospectus. The summary combined financial information for the three months
ended March 31, 1997 and 1998 has been derived from the Company's unaudited
combined financial statements. In the opinion of management the unaudited
combined financial statements of the Company have been prepared on the same
basis as the audited combined financial statements included herein and include
all adjustments necessary for the fair presentation of the financial position
and results of operations for the Company for these periods, which adjustments
are only of a normal recurring nature. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of results that may
be expected for a full year.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March-31
------------------------------------------------------------------ ----------------------
1993 1994 1995 1996 1997 1997 1998
------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue(a) .................. $ 2,585 $ 3,110 $ 4,633 $ 10,367 $ 2,714 $ 10,518 $ 2,596
Operating expenses(b) ........... 1,405 1,794 2,843 6,267 7,339 1,714 1,721
-------- -------- -------- -------- -------- -------- --------
Vessel operating income ...... 1,180 1,316 1,790 4,100 3,179 1,000 875
Interest expense, net ........... 384 392 690 1,159 1,215 301 274
Other (income)/expense, net ..... (1) (9) 31 234 116 10 13
Depreciation .................... 620 782 1,099 2,034 2,367 592 592
-------- -------- -------- -------- -------- -------- --------
Net income/(loss) ............ $ 177 $ 151 $ (30) $ 673 $ (519) $ 97 $ (4)
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
Capital expenditures(c) ......... 6,140 -- 5,800 10,402 -- -- --
Ratio of earnings to
fixed charges(d) .............. 1.5x 1.4x 1.0x 1.6x -- 1.3x 1.0x
Balance Sheet Data (at period end):
Net book value of vessels ....... $ 5,520 $ 4,746 $ 9,446 $ 17,814 $ 15,447 $ 17,222 $ 14,855
Total assets
5,776 5,089 10,257 18,994 17,241 18,496 17,219
Total debt
5,343 4,403 8,471 15,583 12,956 14,691 12,828
Shareholders' equity ............ 179 202 634 1,514 995 1,612 991
Operating Data:
Number of drybulk carriers
(at period end) ............. 2 2 3 5 5 5 5
Average TCE per vessel per
day (e) ..................... $ 4,381 $ 4,443 $ 5,030 $ 6,582 $ 6,010 $ 6,203 $ 5,934
Average vessel running cost per
vessel per day (f) .......... 2,246 2,237 2,746 3,368(g) 3,400(g) 3,505(g) 3,098
Utilization(h) ................ 99.0% 99.0% 100.0% 100.0% 96.0%(i) NA NA
Revenues from time charter .... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Average dwt per vessel
(at period end) ............. 7,923 7,923 10,802 20,835 20,835 20,835 20,835
Average age of fleet
(in years, at period end) ... 17.5 18.5 18.7 20.0 21.0 20.3 21.3
</TABLE>
(a) Net revenue is gross revenues from time charters net of charter commissions
and voyage related expenses.
(b) Operating expenses include, among other things, the amortization of
drydocking expenses, the amortization of special survey costs and
management fees.
(c) In 1993, the Company purchased the Clipper Atlantic and the Clipper
Pacific. In 1995, the Company purchased the Clipper Golden Hind. In 1996,
the Company purchased the Monica Marissa and the Clipper Harmony.
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<PAGE>
(d) Ratio of earnings to fixed charges is calculated as pre-tax net income from
continuing operations plus fixed charges (i.e., interest expense, net)
divided by fixed charges. Earnings in December 1997 and the three months
ended March 1997 were insufficient to pay fixed charges by $0.5 million and
$0.1 million, respectively.
(e) The Company uses the time charter equivalent ("TCE") as a method of
identifying net revenues earned on a daily basis by its vessels assuming
350 days per calendar year.
(f) Vessel running cost is operating expenses less drydocking expenses and
management fees.
(g) In 1996 and in 1997, the Company made significant upgrades to the Monica
Marissa and the Clipper Harmony, respectively. The costs of these upgrades
resulted in an increase in the vessel running costs for these years.
(h) Utilization is calculated on the basis that vessel employment for 350 days
per calendar year equals 100% utilization.
(i) In 1997, utilization was negatively impacted by upgrades made to the
Clipper Harmony.
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<PAGE>
RISK FACTORS
Prospective Investors should carefully consider the information set forth
in this Prospectus and, in particular, the information set forth under "Risk
Factors" in connection with any investment in the Exchange Notes.
Substantial Leverage and Ability to Service Indebtedness
As of the date of this Prospectus, Millenium is highly leveraged. Millenium
currently has $95.4 million of total consolidated indebtedness outstanding and
stockholders' equity of $24.1 million. In addition, subject to the restrictions
in the Indenture, Millenium is permitted to incur additional indebtedness from
time to time, including indebtedness pursuant to a working line of credit that
will be secured by a lien on the Mortgaged Vessels. Such lien would have
priority over the lien in favor of the holders of the Notes. The level of such
indebtedness will have several important effects on Millenium's future
operations, including the following: (i) Millenium's highly leveraged position
may impede its ability to obtain financing in the future for working capital,
capital expenditures and general corporate purposes, including acquisitions of
Additional Vessels; (ii) a substantial portion of Millenium's cash flow from
operations will be required to be dedicated to the payment of interest on its
indebtedness, and will not be available for other purposes; (iii) Millenium may
be hindered in its ability to withstand competitive pressures and respond to
changing business conditions; (iv) Millenium may be more vulnerable to any
downturn in its business, which historically has been cyclical and subject to
general and industry-specific economic conditions; and (v) Millenium may be more
highly leveraged than others with which it competes which may put it at a
competitive disadvantage. Any inability of Millenium to service its indebtedness
or obtain additional financing, as needed, would have a material adverse effect
on Millenium.
Millenium's ability to meet its debt obligations and to reduce its total
indebtedness will depend upon Millenium's future operating performance, which
will be affected by prevailing economic conditions and by financial, business
and other factors affecting the operations of Millenium, many of which are
beyond its control. There can be no assurance that Millenium's business will
continue to generate cash flow at levels sufficient to satisfy its debt service
requirements. If in the future Millenium is unable to generate sufficient cash
from operations to make scheduled interest payments on the Notes at maturity, or
to meet other obligations and commitments, Millenium will be required to adopt
one or more alternatives, such as refinancing or restructuring its indebtedness,
selling vessels or seeking to raise additional debt or equity capital. There can
be no assurance that any of these alternatives could be effected on a timely
basis or on satisfactory terms or at all. In addition, the terms of existing or
future debt agreements, including the Indenture, may prohibit Millenium from
adopting some of these alternatives. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Potential Insufficiency of Collateral; Market Value of Mortgaged Vessels
The Notes, Subsidiary Guarantees and the Working Capital Facility (as
defined) and the Working Capital Guarantees (as defined) will be secured by
mortgages on the Existing Vessels and the Committed Vessels and, following the
acquisition of one or more Additional Vessels, by mortgages on such Additional
Vessels. In the event that Millenium and the Subsidiary Guarantors default on
their obligations to make payments in respect of the Notes or the Working
Capital Facility, holders of the Notes or the Working Capital Facility Provider,
as the case may be, would be entitled to payment out of the proceeds from the
sale of the Mortgaged Vessels. The Company has obtained appraisals by
independent shipbrokers of the Existing Vessels from one Designated Appraiser in
June 1998 and from another in February 1998; of the Millenium Yama, the
Millenium Amethyst, Millenium Elmar and the Millenium Aleksander, from two
Designated Appraisers, each in February 1998; and of the Millenium Majestic,
Millenium Condor, Millenium Falcon, Millenium Osprey, Millenium Eagle, Millenium
Hawk and Millenium Leader from two Designated Appraisers, each in June 1998. In
addition, the Company has obtained an appraisal of the Existing Vessels and
Committed Vessels in June 1998 from a Designated Appraiser, giving effect to
charters relating to such vessels, indicating that the Existing Vessels and the
Committed Vessels have an aggregate appraised value of $82.9 million. See
"Business--The Company's Fleet." The market value of drybulk carriers can be
expected to fluctuate, depending on prevailing general economic and market
conditions and competition from other shipping companies. See "--Cyclical Nature
of Industry, Freight Rates and Vessel Values." Although the Company believes
that the appraisals are a reasonable approximation of the current value of the
Existing Vessels and the Committed Vessels, the Company is not required under
the Indenture to maintain such appraised values (or any future appraised values
in connection with the proposed purchase of Additional Vessels) and there can be
no assurance that the future values of the Existing Vessels and the Committed
Vessels will not differ considerably from their current appraised values. See
"Business--The Company's Fleet."
Notwithstanding the current or future appraised value of the Mortgaged
Vessels, if an Event of Default were to occur under the Indenture or the Working
Capital Facility (and, in accordance with the terms of the Indenture and the
Notes, the maturity of the Notes were accelerated and the Trustee or the Holders
elected to foreclose on the Mortgaged Vessels and the other Collateral), the
ability of the Company to realize such value upon the foreclosure sale of the
Mortgaged Vessels and such other Collateral and to satisfy in full its
obligations with
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<PAGE>
respect to the Notes and the Working Capital Facility would depend upon
prevailing market and economic conditions, the physical condition of the
Mortgaged Vessels, the availability of buyers and other similar factors at the
time of sale. Accordingly, there can be no assurance that the proceeds of any
foreclosure sale of the Mortgaged Vessels and such other Collateral pursuant to
the Indenture and the Security Agreements (as defined) following an Event of
Default would be sufficient to satisfy payments due on the Notes and, if
applicable, on the amounts due under the Working Capital Facility. In addition,
there is no assurance that a foreclosure sale would give value to the charters
then in effect for such Mortgaged Vessel. Furthermore, in certain circumstances,
the extent to which the Mortgages may be enforced and the extent to which the
Mortgages will have priority over the claims of other creditors is limited. See
"--Enforcement of Mortgages." If the proceeds from any such foreclosure sale of
the Mortgaged Vessels and the other Collateral are not sufficient to satisfy
payments due on the Notes and, if applicable, on the amounts due under the
Working Capital Facility, the Holders (to the extent not repaid from such
proceeds) will have only unsecured claims against the remaining assets, if any,
of Millenium and the Subsidiary Guarantors.
Cyclical Nature of Industry, Freight Rates and Vessel Values
The Company is an independent shipping company which operates in the
drybulk market. This market has been cyclical in varying degrees, experiencing
fluctuations in freight rates, profitability and, consequently, vessel values.
These fluctuations have been primarily due to changes in the level and pattern
of global economic growth, the highly competitive nature of the world shipping
industry and changes in the supply of and demand for seaborne shipping capacity.
Freight rates are strongly influenced by the supply of and demand for
shipping capacity. The demand for shipping capacity is primarily determined by
demand for the commodities carried and by the distance that those commodities
are to be moved by sea. Demand for commodities is affected by, among other
things, world and regional economic and political conditions (including
developments in international trade, fluctuations in industrial and agricultural
production, armed conflicts, embargoes and strikes), environmental concerns,
weather patterns, canal closures and changes in seaborne and other
transportation patterns and crop yields. The supply of shipping capacity,
measured by the amount of suitable tonnage available to carry cargo, is
determined by the size of the existing fleet in a particular market, the number
of newbuilding deliveries, the scrapping of older vessels and the number of
vessels out of active service (i.e., laid-up, drydocked, awaiting repairs or
otherwise not available for hire). In addition to prevailing and anticipated
freight rates, factors that affect the rate of newbuilding, scrapping and
laying-up include newbuilding prices, second hand vessel values in relation to
scrap prices, costs of bunkers and other operating costs, costs associated with
classification society surveys, normal maintenance and insurance coverage, the
efficiency and age profile of the existing fleet in the market and government
and industry regulation of maritime transportation practices, particularly
environmental protection laws and regulations. The factors that influence the
supply of and demand for shipping capacity are outside the control of the
Company, and the nature, timing and degree of changes in industry conditions are
unpredictable. See "Business" and "The International Bulk Carrier Market."
The market value of the Company's vessels can be expected to fluctuate
largely in relation to existing and anticipated freight rates as well as with
changes in general economic and market conditions. In particular, the economic
crisis in southeast Asia that developed in the second half of 1997 has had an
adverse effect on vessel values and freight rates. The Company cannot predict
when vessel values and freight rates will begin to recover and there can be no
assurance that values and rates will not decline even further as a result of the
southeast Asian crisis or other economic conditions. Furthermore, as vessels
grow older they can generally be expected to decline significantly in value. As
the values of the Company's vessels decline, it may be more costly for the
Company to refinance debt relating to such vessels, which could have a material
adverse effect on the Company's liquidity.
Forward-Looking Information
This Prospectus includes certain statements, provided by the Company and
other sources believed by the Company to be reliable. All statements included in
this Prospectus regarding adjusted, estimated, pro forma, projected or intended
or anticipated future operations or financial performance, and all other
statements that neither expressly nor according to their context are historical
facts, are forward-looking statements. Moreover, words and expressions such as:
"believes," "is likely to," "should result in," "may," "intends," "foresees,"
"desires," "expects," "anticipates," "projects," "enables," "estimates,"
"predicts," "prospects" and analogous or correlative statements, and all
statements preceded or otherwise qualified by "there can be no assurance" or "no
assurance can be given," are also intended to identify forward-looking
statements. Such statements are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company and, therefore, are impossible to predict. Accordingly,
there can be no assurance that the matters covered by such statements will be
realized. These forward-looking statements and actual developments, events,
achievements and results will likely vary and those variations may be material.
The Company can offer no promises, guarantees, representations or warranties as
to the accuracy or completeness of such forward-looking statements contained in
this Prospectus, and prospective investors in the Exchange Notes are cautioned
not to place undue reliance on such statements.
-15-
<PAGE>
Moreover, such forward-looking statements are based upon the Company's
beliefs by which the Company attempts to measure activity in, and to analyze the
factors affecting, the markets for its services. There can be no assurance that
(i) the Company has correctly measured or identified all the factors affecting
these markets or the extent of their likely impact, (ii) the publicly available
information with respect to these factors on which the Company's analysis is
based is complete or accurate, (iii) the Company's analysis is correct or (iv)
the Company's strategy, which is based in part on this analysis, will be
successful. Factors that could cause actual results to differ from those
reflected in the Company's forward-looking statements include fluctuations in
time and spot charter rates resulting from various supply and demand
considerations, such as an adverse change in the prices of the various
commodities carried, economic and political regional instability, adverse
currency fluctuations and other factors not within the Company's ability to
predict or control.
Risks Associated with the Purchase and Operation of Second Hand Vessels
The Existing Vessels and the Committed Vessels consist of 16 Handysize
drybulk carriers, all of which are between 10 and 25 years of age. All of these
vessels were or, in the case of the Committed Vessels not acquired as of the
date of this Prospectus, will be acquired second hand, and their useful lives
are estimated by the Company to be 30 years, depending on various market factors
and management's ability to comply with government and industry regulatory
requirements. The Company's current business strategy includes the acquisition
of up to six Additional Vessels, and a portion of the net proceeds of the
offering of the Existing Notes will be used to purchase such Additional Vessels,
none of which has yet been identified. There can be no assurance, however, that
such Additional Vessels will be available for purchase on terms favorable to the
Company or that, if acquired, such Additional Vessels will have significant
useful lives. In addition, the Company's inspections of second hand vessels
prior to purchase would not normally provide the Company with the same knowledge
about the condition of such vessels that the Company would have obtained if such
vessels had been built for and operated exclusively by the Company. See "Use of
Proceeds" and "Business--The Company's Fleet."
In general, expenditures necessary for maintaining a vessel in good
operating condition increase as the age of the vessel increases, and older
vessels may develop unexpected mechanical and operational problems despite
adherence to regular survey schedules and proper maintenance. Moreover, second
hand vessels typically carry very limited warranties with respect to their
condition as compared to warranties available for newer vessels. Cargo insurance
rates also tend to increase with the age of a vessel, and second hand vessels
tend to be less fuel efficient than newer vessels. While the difference in fuel
consumption is factored into the freight rates earned by older vessels, if the
cost of bunker fuels were to increase significantly, as happened immediately
prior to the Gulf War in 1991, the Company's vessels could be disproportionately
affected or earn significantly lower freight rates. In addition, changes in
governmental regulations, safety or other equipment standards may require
expenditures for alterations to existing equipment, the addition of new
equipment to the fleet or restrictions on the cargoes that the fleet may
transport. There can be no assurance that market conditions will justify such
expenditures or enable the Company to operate its vessels profitably during the
remainder of the economic lives of such vessels.
Potential Unavailability of Time Charters at Attractive Rates;
Possible Dependence on Spot Charter Market; Potential Decrease in Utilization
Rates
The Company currently charters the Existing Vessels and eight of the
Committed Vessels on a period time charter basis. All of the Company's revenue
in 1997 was derived from time charters. Such charters will expire in February or
March 1999 or February 2000 unless extended by the present charterers. There can
be no assurance that if these charters are renewed or extended, the charter hire
rates will be at or greater than the current charter hire rates for the Existing
Vessels or the eight Committed Vessels or that such extension or renewals will
be profitable or that if such charters are not renewed or extended, profitable
replacement period time charters will be available at that time. One or more of
the Mortgaged Vessels, therefore, may have to enter the spot market upon the
expiration of a time charter until the Company can identify a replacement time
charter. The spot charter market is highly competitive and spot charter rates
are subject to greater fluctuations than time charter rates. If profitable time
charters are not available, there can be no assurance that spot charters will be
available at rates that will be sufficient to enable the Mortgaged Vessels to be
operated profitably or at all.
In addition, dependence on the spot market may result in lower vessel
utilization and consequently decreased profitability. There can be no assurance
that rates in the time or spot charter market will not decline, that charters in
the time or spot markets will continue to be available or that dependence on the
spot market will not result in generally lower overall utilization, decreased
profitability or an inability to service the Notes.
Competition
The Company obtains charters for vessels in highly competitive markets in
which its market share is insufficient to enforce any degree of pricing
discipline. Although the Company believes that no single competitor has a
dominant position in the markets in which the Company
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<PAGE>
competes, the Company is aware that certain competitors may be able to devote
greater financial and other resources to their activities which may result in a
greater competitive threat to the Company. There can be no assurance that the
Company will continue to compete successfully with its competitors or that the
Company's competitive position will not be eroded in the future.
Transactions with Affiliates; Potential Conflicts of Interest
Each of the Mortgaged Vessels owned by the Company currently receives, and
each of the Mortgaged Vessels to be acquired by the Company will receive,
technical and management services from MMI pursuant to a new ship management
agreement (the "New Management Agreement") between each of the Subsidiary
Guarantors and MMI. MMI is the sole shareholder and, therefore, an affiliate of
Millenium. Under the New Management Agreement, MMI acts as the fleet's technical
manager and performs all commercial management functions. MMI subcontracts the
technical management and certain commercial management of the Mortgaged Vessels
to KYLCO. MMI owns all of the capital stock of Kylco Greece and 35% of the
capital stock Kylco USA and the balance of the capital stock of Kylco Greece and
Kylco USA is owned by members of the Company's senior management. MMI retains
the overall responsibility to the Company for both technical and commercial
management of the vessels. As remuneration for its services, MMI receives a
fixed daily management fee (payable monthly in advance) and receives a
commission on all gross revenue in respect of time charters and spot charters
earned by each vessel managed, a commission on the gross sale or purchase price
of vessels which the Company purchases or sells and a commission on all
insurance placed. The Company believes that the terms of the New Management
Agreement are at least as favorable to the Company as can be obtained from
independent third party managers. MMI and KYLCO may perform similar services for
similar compensation arrangements for vessels that are unaffiliated with the
Company. See "Business--Operations," and "Certain Transactions--New Management
Agreement."
The relationships between the Company and each of MMI and KYLCO may give
rise to conflicts of interest between Millenium on the one hand and MMI and
KYLCO on the other. Although the Indenture limits certain transactions with
affiliates and, among other things, requires that any arrangement with an
affiliate be on terms materially no less favorable to the Company than those
that could be obtained in a comparable transaction on an arms' length basis with
an independent third party, the Indenture does not otherwise prohibit the
payment of amounts to any such parties, nor does it require the approval of the
Holders or the Trustee for such arrangements or payments, regardless of amount.
See "Description of the Exchange Notes--Certain Covenants" and "Certain
Transactions--New Management Agreement." In addition, most of the senior
management of the Company also hold senior management positions with MMI, KYLCO
or any combination thereof. In light of their positions, these individuals may
experience conflicts of interest in selecting between the Company's interests
and those of MMI or KYLCO. Finally, MMI and KYLCO also manage vessels for third
party ship owners. In light of these management obligations, MMI and KYLCO may
experience conflicts of interest in selecting between the Company's interests
and those of such third parties.
Possible Catastrophic Loss and Liability; Insurance
The ownership and operation of any ocean-going vessel in international
trade is affected by a number of risks, including mechanical failure, personal
injury, vessel and cargo loss or damage, business interruption due to political
conditions in foreign countries, hostilities, labor strikes, adverse weather
conditions and catastrophic marine disaster, including environmental accidents
and collisions. All these risks could result in liability to the Company and
could cause loss of revenue, increased costs or loss of reputation.
The Company maintains, and is required by the Security Agreements to
continue to maintain, insurance consistent with industry standards against these
risks (except that the Company, like many of its competitors, does not maintain
business interruption or "off-hire" insurance. See "--Risk of Arrest; Loss of
Hire"). There can be no assurance, however, that the Company will adequately
insure against all risks, that any particular claim will be paid out of such
insurance, or that the Company will be able to procure adequate insurance
coverage at commercially reasonable rates in the future. More stringent
environmental and other regulations may result in increased costs for, or the
lack of availability of, insurance against the risks of environmental damage,
pollution and other claims for damages that may be asserted against the Company.
Moreover, even if insurance proceeds are paid to the Company to cover the
financial losses incurred following the occurrence of one of these events, there
can be no assurance that the Company's business reputation, and therefore its
ability to obtain future charters, will not be materially adversely affected by
such an event. Such an impact on the Company's business reputation could have a
material adverse effect on the Company's business and results of operations. See
"Business--Insurance."
Operations Outside the United States
The operations of the Company are conducted worldwide, primarily outside of
the United States, and therefore may be affected by currency fluctuations and by
changing economic, political and social conditions in the countries where its
business is conducted or where its vessels are registered or flagged. In
particular, the operations may be affected by war, expropriation of vessels, the
imposition of taxes,
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<PAGE>
increased regulation or other circumstances, and as a consequence, the Company
may incur higher costs, its assets may be impaired or its operations may be
curtailed.
Millenium is incorporated in the Cayman Islands and the Subsidiary
Guarantors are incorporated in either the Cayman Islands, Cyprus or Liberia. All
of the assets of the Company are located outside the United States.
Consequently, it may not be possible to enforce judgments against the Company or
any Subsidiary Guarantor, including judgments predicated upon the civil
liability provisions of the federal securities laws of the United States. See
"Enforceability of Civil Liabilities."
Environmental and Other Regulations
The Company's operations are materially affected by extensive and changing
environmental protection and other laws, rules, regulations and conventions,
compliance with which may entail significant expense, including expenses for
ship modifications and changes in operating procedures. Although the Company
believes it is in substantial compliance with such laws, rules, regulations and
conventions, there can be no assurance that the costs of compliance, or the
failure to comply, would not have a material adverse effect on the Company's
business, results of operations, financial condition and liquidity.
The United States Oil Pollution Act of 1990, as amended ("OPA 90"), imposes
strict, joint and several liability on owners, operators and charterers by
demise (i.e., bareboat charterers) of vessels (the "Responsible Parties") for
actual or threatened discharges of oil into the navigable waters of the United
States or adjoining shorelines, including the 200-nautical mile exclusive
economic zone of the United States ("U.S. Waters"), with certain limited
exceptions. OPA 90 limits the strict liability of Responsible Parties to the
greater of $1,200 per gross ton or $10 million per tanker and the greater of
$600 per gross ton or $500,000 for all other vessels (subject to possible
adjustment for inflation) for removal costs and damages that result from an
actual or threatened discharge of oil. These limits do not apply, however, if
the incident is caused by gross negligence, willful misconduct, or the violation
by a Responsible Party or its agent of any applicable United States federal
safety, construction or operating regulation, or if the Responsible Party fails
to report the incident or cooperate in connection with related removal
activities. In addition, OPA 90 specifically permits individual states to impose
their own liability regimes with regard to hazardous materials and oil pollution
incidents occurring within their boundaries, and most states bordering on a
navigable waterway have enacted legislation providing for strict unlimited
liability for discharges of pollutants within state waters. In some cases,
states which have enacted such legislation have not yet issued implementing
regulations defining owners' or operators' responsibilities under these laws.
See "Business--Regulation."
Pursuant to regulations promulgated by the United States Coast Guard
("USCG") under OPA 90, Responsible Parties must meet financial responsibility
requirements under OPA 90 and the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"). The protection
and indemnity clubs ("P&I Clubs"), which have historically provided shipowners
and operators with financial assurance, have refused to furnish evidence of
insurance to Responsible Parties and, therefore, Responsible Parties have
obtained financial assurance from other sources at additional cost. Although the
Company currently satisfies such financial responsibility requirements for each
of its vessels that call in U.S. Waters, failure to maintain compliance with
these USCG regulations could have a material adverse effect on the Company's
business, results of operations, financial condition and liquidity. See
"Business--Regulation."
According to the IMO, an agency of the United Nations, 99 bulk carriers
sank between 1990 and 1997. In response to this increase in bulk carrier
accidents, the IMO has adopted regulations to reduce the risk of drybulk
carriers sinking. These regulations generally require new and existing drybulk
carriers to be capable of withstanding the flooding of any one cargo hold at a
particular time. Failure to comply with these IMO regulations could have a
material adverse effect on the Company's business, results of operations,
financial condition and liquidity. See "Business--Regulation."
The Company's operations also are affected by the newly-adopted
requirements set forth in the ISM Code. The ISM Code and implementing
regulations require shipowners and bareboat charterers who have assumed
responsibility for the operation of cargo vessels, including bulk carriers, to
have developed, no later than July 1, 1998, an extensive "Safety Management
System" that includes, among other things, the adoption of a safety and
environmental protection policy setting forth instructions and procedures for
operating their vessels safely and describing procedures for dealing with
emergencies. Noncompliance with the ISM Code may lead to decreases in available
insurance coverage for affected vessels and may result in the denial of access
to, or detention in, certain ports. Although the Company, through KYLCO, has
obtained ISM certification for the Existing Vessels by successfully completing
audits conducted by Det Norske Veritas, a leading classification society,
failure to maintain such certification would have a material adverse effect on
the Company's business, results of operations, financial condition and
liquidity. The Company will be required to obtain ISM Certification for the
Committed Vessels and Additional Vessels within six months of acquiring them. As
of the date of this Prospectus, the Company has obtained ISM Certification for
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seven of the Committed Vessels. Failure to obtain and maintain such
certifications would have a material adverse effect on the Company's business,
results of operations, financial condition and liquidity.
In complying with OPA 90, the IMO regulations, the ISM Code and with other
laws and regulations that may be adopted, shipowners and operators may incur
significant additional costs in meeting new maintenance and inspection
requirements, in developing contingency arrangements for potential spills and in
obtaining insurance coverage. These laws and regulations also may restrict the
economic life of vessels, require a reduction in cargo carrying capacity and
make such vessels less desirable to potential charterers. Additional laws and
regulations may be adopted which could limit the ability of the Company to do
business and which could have a material adverse effect on the Company's
business, results of operations, financial condition and liquidity. See
"Business--Regulation."
Risk of Arrest; Loss of Hire
All the Existing Vessels and Committed Vessels are on time charter to third
parties. Under the terms of the Company's charters, the vessels are placed
off-hire (i.e., the charterer ceases to pay charter hire) for any period during
which such vessel is "arrested" for a reason not arising from the fault of the
charterer. Under the general maritime law in many jurisdictions, crew members,
tort claimants, claimants for breach of certain maritime contracts, vessel
mortgagees, suppliers of goods and services to a vessel and shippers and
consignees of cargo may be entitled to a maritime lien against that vessel for
unsatisfied debts, claims or damages, and in many circumstances a maritime
lienholder may enforce its lien by "arresting" a vessel through court processes.
In addition, in certain jurisdictions, such as South Africa, under the
"sister ship" theory of liability, a claimant may arrest not only the vessel
with respect to which the claimant's maritime lien has arisen, but also any
"associated" vessel owned or controlled by the legal or beneficial owner of that
vessel. While in some of the jurisdictions which have adopted this doctrine,
liability for damages is limited in scope and would only extend to a company and
its shipowning subsidiaries, there can be no assurance that liability for
damages caused by a vessel managed by MMI or KYLCO would not be asserted against
Millenium, any of its shipowning subsidiaries or their respective vessels. The
arrest of one or more vessels could result in a material loss of cash flow for
the Company or require the Company to pay substantial sums to have the arrest
lifted. Although the Company currently maintains insurance coverage for
liability for each of its vessels, there can be no assurance that such insurance
will continue to be available on terms favorable to the Company, or at all. See
"--Possible Catastrophic Loss and Liability; Insurance" and
"Business--Insurance."
Special Mandatory Redemption Upon Failure to Acquire Additional Vessels
Although the Company intends to use substantially all the net proceeds of
the Existing Notes to purchase additional vessels and to make related vessel
upgrades and make deposits and pay related transaction fees and expenses, there
can be no assurance that it will be able to secure agreements to purchase such
vessels or to take delivery of such vessels in the time period set forth in the
Indenture, if at all. In such event, the Company would be required to redeem a
portion of the Exchange Notes and the untendered Existing Notes, if any. See
"Use of Proceeds" and "Description of the Exchange Notes--Escrow of Proceeds;
Special Mandatory Redemption."
Change of Control
In the event of a Change of Control, the Company will be required, subject
to certain conditions, to offer to purchase all outstanding Notes at a price
equal to 101% of the Accreted Value thereof, plus accrued but unpaid interest to
the date of purchase. There can be no assurance that the Company would have the
financial resources to purchase the Notes. See "Description of the Exchange
Notes--Change of Control."
Enforcement of Mortgages
Each of the Mortgaged Vessels is, and during the term of the Notes is
expected to be, registered under either the Liberian, Cypriot, Panamanian,
Cayman Islands or Bahamian flag (or other jurisdictions of similar authority).
Currently, one of the Existing Vessels is registered under the Liberian flag,
two of the Existing Vessels are registered under the Cypriot flag and two of the
Existing Vessels are registered under the Panamanian flag. Three of the
Committed Vessels are registered under the Bahamian flag with the remaining
Committed Vessels registered, or to be registered upon their acquisition by the
Company, under the Cayman Islands flag. Liberian, Cypriot, Panamanian, Bahamian
and Cayman Islands law provide that such mortgages may be enforced by the
mortgagee by a suit in admiralty in a proceeding against the mortgaged vessel.
Historically, Liberian, Cypriot, Panamanian, Bahamian and Cayman Island ship
mortgages have been enforced in major commercial ports throughout the world,
including United States ports. However, Millenium has been advised that the
priority that any of the mortgages would have against the claims of other lien
creditors in an enforcement proceeding is generally determined by, and will
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vary in accordance with, the laws of the country where the proceeding is
brought. Liberian, Cypriot, Panamanian, Bahamian and Cayman Islands ship
mortgages may be enforced against a vessel physically present in the United
States, but the claim under any such mortgage would rank junior to preferred
maritime liens, which include those for supplies, wages and other necessities
provided in the United States. Since the Mortgaged Vessels will also operate
throughout the world, there can be no assurance that if enforcement proceedings
are commenced against a Mortgaged Vessel, the Mortgaged Vessel will be located
in a jurisdiction having the same mortgage enforcement procedures and lien
priorities as Liberia, Cyprus, Panama, The Bahamas or the Cayman Islands,
although, upon the occurrence of an event of Default, the Collateral Agent (as
defined) may be able to effect control over the Mortgaged Vessels to direct them
to a desirable jurisdiction to arrest such vessels pursuant to judicial
foreclosure proceedings. See "The Mortgages."
Although each of the Mortgaged Vessels is or will be separately owned by a
subsidiary of Millenium, under certain circumstances, a parent company and all
the shipowning affiliates in a group under common control or engaged in a joint
venture could be held liable for damages or debts owed by one of the other
affiliates. Therefore, it is possible that all of the assets of Millenium and
its subsidiaries could be subject to execution upon a judgment against Millenium
or any of its subsidiaries. Although the Company currently maintains insurance
coverage for liability for each of its vessels, there can be no assurance that
such insurance will continue to be available on terms favorable to the Company,
or at all. See "--Possible Catastrophic Loss and Liability; Insurance" and
"Business--Regulation."
Certain Creditors' Rights; Fraudulent Conveyance Statutes
The Notes are secured by mortgages granted by, and Guarantees made by, the
Subsidiary Guarantors. Accordingly, the granting of the mortgages, the making of
the Guarantees and any payments made under the Guarantees by the Subsidiary
Guarantors may be subject to review under relevant fraudulent conveyance laws if
a bankruptcy, reorganization or rehabilitation case or a lawsuit (including
circumstances in which bankruptcy is not involved) were commenced by, or on
behalf of, unpaid creditors of the Subsidiary Guarantors at some future date.
These laws differ among various jurisdictions. In general, under these laws, if
a court were to find that, among other things, at the time an obligation such as
the Guarantees were incurred, either (a) such obligation was incurred with the
intent of hindering, delaying or defrauding creditors or (b) the entity
incurring the obligation received less than reasonably equivalent or fair value
consideration in exchange for the incurrence of such obligation and the entity
incurring such obligation (i) was insolvent or was rendered insolvent by reason
thereof, (ii) was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital, (iii) intended to incur, or
believed, or reasonably should have believed, that it would incur, debts beyond
its ability to pay such debts as they matured (as all of the foregoing terms are
defined in, or interpreted under, the fraudulent conveyance statutes) or (iv)
such entity was a defendant in an action for money damages, or had a judgment
for money damages docketed against it (if, in either case, after final judgment,
the judgment is unsatisfied) (each of clauses (i)-(iv) above, a "Fraudulent
Conveyance"), such court could impose legal and equitable remedies, including
(x) subordination of the obligation and the liens, and direction of the
repayment of any amounts paid from the proceeds thereof to a fund for the
benefit of the entity's creditors or (y) taking of other action detrimental to
the holders of the Notes.
The measure of insolvency for purposes of determining whether a Fraudulent
Conveyance has occurred will vary depending upon the laws of the relevant
jurisdiction and upon the valuation assumptions and methodology applied by the
court.
The Company believes that at the time of, or as a result of, granting of
the mortgages, the issuance of the Guarantees and the application of the net
proceeds of the Existing Notes and the Equity Contribution, each of the
Subsidiary Guarantors (a) will not be insolvent or rendered insolvent under the
foregoing standards, (b) will not be engaged in a business or transaction for
which its remaining assets would constitute unreasonably small capital, (c) does
not intend to incur, and does not believe that it will or would incur, debts
beyond its ability to pay such debts as they mature and (d) will have sufficient
assets to satisfy any probable money judgment against it in any pending actions.
Such beliefs are based in part on the Company's operating history and
management's analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company at the Original Issue Date. There can be
no assurance, however, that a court passing on these issues would adopt or
utilize the same methodology or assumptions, or arrive at the same conclusions
as the Company.
Expansion of Business
Between the Original Issue Date and July 31, 1999, the Company's fleet is
expected to expand beyond the Existing Vessels by approximately 17 Handysize
drybulk carriers. This rapid expansion will significantly increase the
responsibilities associated with owning, operating and managing the Company's
fleet. The Company expects to hire additional employees and upgrade bookkeeping,
tracking and computer systems in order to meet such operational and
administrative requirements. There can be no assurance, however, that these
plans will be implemented successfully, or that if implemented, they will
sufficiently compensate for the increased responsibilities.
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Concentration of Voting Power
MMI is the sole shareholder of Millenium. As of the Original Issue Date,
Millenium Investment, a Cayman Islands company, and Millenium Advisors, L.L.C.,
a New York limited liability company, beneficially owned in the aggregate
approximately 44% of the outstanding common stock of MMI. The sole director of
Millenium Investment also serves as the managing member of Millenium Advisors.
See "Principal Stockholders."
Dependence on Key Personnel
The Company is dependent upon a limited number of senior executives for the
principal decisions with respect to the Company's activities. The loss or
unavailability of the services of any such person for any significant period of
time could have a materially adverse effect on the Company's business and
results of operations. See "Officers and Directors."
Withholding Tax
All payments by the Company or any Subsidiary Guarantor with respect to the
Notes or the related Guarantees will be made without withholding or deduction
for taxes imposed by any jurisdiction in which the Company or any of the
Subsidiary Guarantors is then incorporated or resident for tax purposes unless
required by law or the interpretation or administration thereof, in which case,
the Company will, except in certain circumstances, (i) pay such additional
amounts as may be necessary so that the net amount received by the Holders after
such withholding or deduction will not be less than the amount that would have
been received in the absence of such withholding or deduction or (ii) if the
payments in respect of the Notes become subject to taxes imposed by the Cayman
Islands, Cyprus or Liberia, redeem the Notes at 100% of the Accreted Value
thereof, plus accrued and unpaid interest to the date of such redemption. See
"Description of the Exchange Notes- -Additional Amounts" and "Description of the
Exchange Notes--Redemption for Changes in Withholding Taxes." The Company has
been advised by legal counsel, Maples and Calder, with regard to the laws of the
Cayman Islands, Andreas Demetriades Law Office, with regard to the laws of
Cyprus and the Law Offices of Basil T. Patkos with regard to the laws of
Liberia, that the Cayman Islands, Cyprus and Liberia will not impose, under
present laws, any withholding taxes on payments by the Company or any Subsidiary
Guarantor. Prospective Holders should consult their tax advisors respecting the
implications of taxation before investing in the Notes. See "Certain United
States Federal Income Tax Consequences" and "Certain Foreign Tax
Considerations."
Currency Risks
All the Company's revenue and most of its expenses are denominated in
United States dollars. However, the Company has incurred and will continue to
incur expenses in other currencies, particularly Greek drachmae. For the year
ended December 31, 1997, total expenses incurred in Greek drachmae accounted for
approximately 10% of the total expenses incurred in such period. While the
Unites States dollar has generally appreciated against the Greek drachma in
recent years, it has also depreciated from time to time. Depreciation in the
value of the United States dollar relative to the Greek drachma would increase
the United States dollar cost to the Company of paying such expenses and thus
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the portion of the Company's business conducted
in other currencies will not increase in the future, which could expand the
Company's exposure to losses arising from currency fluctuations. The Company has
not historically hedged its exposure to foreign currency fluctuations.
Absence of Public Market for the Exchange Notes
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for the Exchange
Notes. The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Exchange Notes will be permitted to be
resold or otherwise transferred by Holders who have met the conditions of the
Exchange Offer without compliance with the registration requirements under the
Securities Act, Millenium does not intend to list the Exchange Notes on any
securities exchange or to seek the admission thereof to trading on the Nasdaq
National Market. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the existence of or
liquidity of the trading market for the Exchange Notes. See "Plan of
Distribution."
Historically, the market for securities such as the Exchange Notes has been
subject to disruptions that have caused substantial volatility in the prices of
such securities. There can be no assurance that, if a market for the Exchange
Notes were to develop, such a market would not be subject to similar
disruptions. Such disruptions may materially and adversely affect holders of the
Exchange Notes.
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Exchange Offer Procedure
The issuance of the Exchange Notes pursuant to the Exchange Offer will be
made only after a timely receipt by the Company or its agents of a properly
completed and duly executed Letter of Transmittal, or an agreement to be bound
thereby, and all other required documents. Therefore, Holders of Existing Notes
desiring to tender such Existing Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to tenders of
Existing Notes for Exchange Notes. Existing Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions on transfer thereof,
and upon consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any Holder
of Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the liquidity of untendered and
tendered but unaccepted Existing Notes could be adversely affected. See "The
Exchange Offer."
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Existing Notes were issued by Millenium in July 1998, to Credit Suisse
First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation
(the "Initial Purchasers"). The Initial Purchasers subsequently placed the
Existing Notes with (i) persons whom they reasonably believe to be QIBs (as
defined in Rule 144A) in reliance on Rule 144A under the Securities Act and (ii)
directly, or through their international affiliates, in offshore transactions
complying with the requirements of Rule 903 or Rule 904 of Regulation S under
the Securities Act. As a condition to the purchase of the Existing Notes by the
Initial Purchasers, Millenium and the Subsidiary Guarantors entered into the
Registration Rights Agreement with the Initial Purchasers, which requires, among
other things, that promptly following the sale of the Existing Notes to the
Initial Purchasers, the Company would (i) file with the Commission a
registration statement under the Securities Act with respect to a registered
offer to exchange the Existing Notes for the Exchange Notes of Millenium
identical in all material respects to the Existing Notes, (ii) use its best
efforts to cause such registration statement to become effective under the
Securities Act within 150 days after the Original Issue Date and (iii) use its
best efforts to cause the Exchange Offer to be consummated. The Company has
agreed to keep the Exchange Offer open for 30 days with the right to extend the
Exchange Offer up to a maximum of 60 days.
Following the consummation of the Exchange Offer, Holders of the Existing
Notes who did not tender their Existing Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
Existing Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Existing Notes could be
adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Existing Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue up to
$100,000,000 principal amount at maturity of Exchange Notes in exchange for a
like principal amount at maturity of outstanding Existing Notes accepted in the
Exchange Offer. Holders may tender all or a portion of their Existing Notes
pursuant to the Exchange Offer. However, Existing Notes may be tendered only in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
The form and terms of the Exchange Notes will be identical to the form and
terms of the Existing Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the Holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Existing Notes tendered in exchange
therefor and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
at maturity of the Existing Notes was outstanding and registered in the name of
Cede & Co., as nominee for DTC. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, the Letter of Transmittal and
the Notice of Guaranteed Delivery will be mailed initially.
Holders of Existing Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Existing
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company has agreed to pay all
charges and expenses in connection with the Exchange Offer.
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Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
Interest on the Exchange Notes
The Exchange Notes will be deemed to accrue interest from July 24, 1998
(the date of original issuance of the Existing Notes) or from the date of the
last periodic payment of interest on such Existing Notes, whichever is later.
Interest on the Exchange Notes will be payable semi-annually on each January 15
and July 15, commencing on January 15, 1999.
Procedures for Tendering
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must either (i)
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed (if required by the Letter of Transmittal) and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
or (ii) in the case of a book-entry transfer, confirm book-entry transfer of the
Existing Notes into an equal principal amount at maturity of Exchange Notes into
the Exchange Agent's account at DTC, in either case prior to 5:00 p.m., New York
City time, on the Expiration Date. To be tendered effectively, the Existing
Notes, Letter of Transmittal and other required documents must be received by
the Exchange Agent at the address set forth below under "--Exchange Agent" or,
if book-entry transfer is used, electronic instructions with regard to the
Existing Notes, the Letter of Transmittal and all other required documents must
be received by DTC, in each case prior to 5:00 p.m., New York City time, on the
Expiration Date. A Holder of Existing Notes may also tender in the Exchange
Offer by complying with the procedure set forth under "--Guaranteed Delivery
Procedures."
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Existing Notes at DTC for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of the Existing Notes
by causing DTC to transfer such Existing Notes into the Exchange Agent's account
with respect to the Existing Notes in accordance with DTC's procedures for such
transfer.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Existing Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of, and
agrees to be bound by, the Letter of Transmittal.
By executing or electronically confirming the Letter of Transmittal, each
Holder will make to the Company the representations set forth below in the
second paragraph under "--Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between such Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, TO THE EXCHANGE AGENT
IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST REGISTRATION COMPANIES OR NOMINEES TO EFFECT
THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
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Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Existing Notes listed therein, such Existing Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Existing
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company, in its reasonable discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Existing Notes not properly tendered or any Existing
Notes the acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Existing Notes, none of the
Company, the Exchange Agent or any other person shall incur any liability for
failure to give such notification. Tenders of Existing Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Existing Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Guaranteed Delivery Procedures
Holders not holding through DTC or Cede & Co. who wish to tender their
Existing Notes and (i) whose Existing Notes are not immediately available, (ii)
who cannot deliver their Existing Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Existing Notes
and the principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date or the execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Existing Notes (or a confirmation of
book-entry transfer of such Existing Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility) and any other documents required by the Letter
of Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Withdrawals of Tenders
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
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<PAGE>
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal (or a written or electronic ATOP
transmission notice of withdrawal for DTC participants) must be received by the
Exchange Agent at its address set forth herein (or received into the Exchange
Agent's account at DTC) prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn, (iii) be signed or confirmed
by the Holder in the same manner as the original signature on or confirmation of
the Letter of Transmittal by which such Existing Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Existing Notes register the
transfer of such Existing Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Existing Notes are to be
registered, if different from that of the Depositor. If Existing Notes have been
delivered pursuant to the procedures for book-entry transfer described above,
any notice of withdrawal must also specify the name and number of the account at
DTC, and must otherwise comply with DTC's procedures. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Existing Notes so withdrawn are
validly untendered. Any Existing Notes which have been tendered but which are
not accepted for exchange, will be returned to the Holder thereof without cost
to such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
untendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange any Exchange Notes for, any
Existing Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Existing Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company has occurred which, in the
sole judgment of the Company might materially impair the ability of the
Company to proceed with the Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(e) the Company believes there has been a change in law or applicable
interpretation thereof by the staff of the Commission such that the
Exchange Notes to be received by Holders in the Exchange Offer would not
be, upon receipt, transferable by each such Holder (other than any Holder
who is an affiliate of the Company, who acquires the Exchange Notes outside
the ordinary course of its business or who has any arrangement or
understanding with any person to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes) without restrictions under the
Securities Act.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Existing
Notes and return all tendered Existing Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Existing Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Existing Notes (see "--Withdrawals of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Existing Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten Business Days if the
Exchange Offer would otherwise expire during such five to ten-day period. All
conditions,
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<PAGE>
other than governmental approval, must be satisfied on or prior to the
expiration of the Exchange Offer in order to consummate the Exchange Offer.
Exchange Agent
The First National Bank of Maryland has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance or for additional
copies of this Prospectus, the Letter of Transmittal or the Notice of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
By Hand: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
By Overnight Mail or Courier: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and their affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any payments to brokers or
others soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and pay other registration expenses, including fees and expenses of the Trustee,
filing fees, blue sky fees and printing and distribution expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid or reimbursed by the Company and are estimated in the
aggregate to be in excess of $120,000.
Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Existing Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered Holder of the Existing Notes
tendered, or if tendered Existing Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Existing Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Holder or any other person) will be payable by the tendering
Holder.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is face value, as reflected in the accounting records of
the Company on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized.
Resale of Exchange Notes
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold or otherwise transferred by any Holder of such
Exchange Notes (other than any such Holder which is an "affiliate" of the
Company within the meaning
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<PAGE>
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any Holder who is an affiliate of the Company, who acquires the
Exchange Notes outside the ordinary course of its business or who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co. Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holder's information required by the applicable provisions
of Item 507 or 508, as appropriate, of Regulation S-K of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) the Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder acknowledges that if it participates in the
Exchange Offer for the purpose of distributing the Exchange Notes (a) it must,
in the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters referenced
above and (b) failure to comply with such requirements in such instance could
result in such Holder incurring liability under the Securities Act for which
such Holder is not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder represents to the Company either that it is not an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company or,
if it may be deemed an "affiliate" of the Company that such Holder understands
and acknowledges that the Exchange Notes may not be offered for resale, resold
or otherwise transferred by that Holder without complying with the applicable
registration and prospectus delivery requirements of the Securities Act. A
Holder who is a broker-dealer must also acknowledge to the Company that it
acquired the Existing Notes as a result of market-making activities or other
trading activities.
Consequences of Failure to Exchange
As a result of the making of this Exchange Offer, the Company generally
will have fulfilled its obligations under the Registration Rights Agreement, and
Holders of Existing Notes who do not tender their Existing Notes generally will
not have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder of Existing Notes that does not exchange
such Existing Notes for Exchange Notes will continue to hold such Existing Notes
and will be entitled to all the rights, and subject to all the limitations,
applicable thereto under the Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to have further effectiveness as
a result of the Exchange Offer.
Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to Millenium (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Existing Notes are eligible for resale
pursuant to Rule 144A, to a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
Rule 144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder or (v) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Because the Exchange Offer is for any and all Existing Notes, the number of
Existing Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Existing Notes outstanding. As a result, the liquidity of
any remaining Existing Notes may be substantially reduced.
Other
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Thacher Proffitt & Wood, New York, New
York, as counsel for the Company, has passed upon the legality of the Exchange
Notes. None of the Company or any of their respective representatives is making
any representation to any offeree of the Exchange Notes offered hereby regarding
the legality of an investment by such offeree or purchaser under appropriate
legal investment or similar laws (which regulate the nature and extent of
permitted
-28-
<PAGE>
investments in certain securities for certain institutional investors).
Each Holder of the Existing Notes should consult with its own advisors as to
legal, tax, business, financial and related aspects of participation in the
Exchange Offer.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's obligations
under the Registration Rights Agreement. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Existing Notes in like principal amount at
maturity, the form and terms of which are substantially the same as the form and
terms of the Exchange Notes, except as otherwise described herein. The Existing
Notes surrendered in exchange for the Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company.
-29-
<PAGE>
CAPITALIZATION
The following table sets forth the actual combined capitalization of the
Company at March 31, 1998 and as adjusted to give effect to the issuance of the
Existing Notes, the Equity Contribution, the acquisition of the Committed
Vessels and the repayment of the indebtedness on the Existing Vessels. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Combined Financial
Statements, included elsewhere in this Prospectus.
As of March 31, 1998
------------------------------
Actual As Adjusted
------------- ---------------
(dollars in millions)
Cash and cash equivalents ....... $ 0.3 $ 31.5(a)
======= ========
Short-term debt(b):
Current portion of long-term debt $ 3.8 $ --
Long-term debt:
Bank indebtedness ............... 9.0 --
Existing Notes, net of discount . -- 95.4(c)
------- --------
Total debt ................ 12.8 95.4
Stockholders' equity ............ 1.0 24.1(c)
------- --------
Total capitalization ............ $ 13.8 $ 119.5
======= ========
Millenium was incorporated on March 10, 1998. As of the Original Issue
Date, Millenium had 10,000,000 shares of Common Stock, par value $.01 per
share authorized, of which 9,500,000 shares were issued and outstanding.
(a) This amount was placed into the Escrow Account for the purchase of
Additional Vessels and pay deposits, transaction fees and expenses and, if
necessary, to make vessel upgrades. In addition, pending actual delivery of
any Committed Vessels that have not been purchased as of the date of this
Prospectus, funds for the purchase of such Committed Vessels will be
temporarily held in the Escrow Account.
(b) The Company has obtained a working capital facility from The Bank of New
York (the "Working Capital Facility") which includes a $7.0 million
committed revolving line of credit, in order to provide further liquidity
to the Company. No amounts are currently outstanding under such Working
Capital Facility.
(c) Of the $96.6 million gross proceeds from the issuance of the Existing
Notes, $95.4 million was allocated to the Notes and $1.2 million was
allocated to additional paid-in capital to reflect the issuance of warrants
to purchase in the aggregate 500,000 shares of Millenium common stock at an
exercise price of $.01 per share (the "Warrants"). Stockholders' equity has
been reduced by $1.1 million to reflect the estimated issuance costs
allocated to the Equity Contribution. No assurance can be given that the
value allocated to the Warrants was or will be indicative of the price at
which the Warrants may actually trade.
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<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION OF THE COMPANY
(in thousands, except ratios and operating data)
The Selected Combined Financial Information set forth below for the Company
for the three years ended December 31, 1995, 1996 and 1997 and as of December
31, 1996 and 1997 has been derived from the Company's audited combined financial
statements and related notes thereto which were prepared in accordance with
United States generally accepted accounting principles. Such combined financial
statements have been audited by Coopers & Lybrand, independent accountants, as
stated in their report included elsewhere in this Prospectus and should be read
in conjunction therewith. The selected combined statement of income data of the
Company set forth below for the two years ended December 31, 1993 and 1994 and
combined balance sheet data as of December 31, 1993, 1994 and 1995 have been
derived from the Company's audited combined financial statements not included in
this Prospectus. The selected combined financial information for the three
months ended March 31, 1997 and 1998 has been derived from the Company's
unaudited combined financial statements. In the opinion of management the
unaudited combined financial statements of the Company have been prepared on the
same basis as the audited combined financial statements included herein and
include all adjustments necessary for the fair presentation of the financial
position and results of operations for the Company for these periods, which
adjustments are only of a normal recurring nature. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for a full year.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
March 31,
---------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue(a) ......................... $ 2,585 $ 3,110 $ 4,633 $ 10,367 $ 10,518 $ 2,714 $ 2,596
Operating expenses(b) .................. 1,405 1,794 2,843 6,267 7,339 1,714 1,721
-------- -------- -------- -------- -------- -------- --------
Vessel operating income ............ 1,180 1,316 1,790 4,100 3,179 1,000 875
Interest expense, net .................. 384 392 690 1,159 1,215 301 274
Other (income)/expense, net ............ (1) (9) 31 234 116 10 13
Depreciation ........................... 620 782 1,099 2,034 2,367 592 592
-------- -------- -------- -------- -------- -------- --------
Net income/(loss) .................. $ 177 $ 151 $ (30) $ 673 $ (519) $ 97 $ (4)
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
Capital expenditures(c) ............... 6,140 -- 5,800 10,402 -- -- --
Ratio of earnings to fixed charges(d) 1.5x 1.4x 1.0x 1.6x -- 1.3x 1.0x
Balance Sheet Data (at period end):
Net book value of vessels ............. $ 5,520 $ 4,746 $ 9,446 $ 17,814 $ 15,447 $ 17,222 $ 14,855
Total assets .......................... 5,776 5,089 10,257 18,994 17,241 18,496 17,219
Total debt ............................ 5,343 4,403 8,471 15,583 12,956 14,691 12,828
Shareholders' equity .................. 179 202 634 1,514 995 1,612 991
Operating Data:
Number of drybulk carriers (at period 2 2 3 5 5 5 5
end).................................
Average TCE per vessel per day(e) ..... $ 4,381 $ 4,443 $ 5,030 $ 6,582 $ 6,010 $ 6,203 $ 5,934
Average vessel running cost per vessel 2,246 2,237 2,746 3,368(g) 3,400(g) 3,505(g) 3,098
per day(f)...........................
Utilization(h) ........................ 99.0% 99.0% 100.0% 100.0% 96.0%(i) NA NA
Revenues from time charter ............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Average dwt per vessel (at period end) 7,923 7,923 10,802 20,835 20,835 20,835 20,835
Average age of fleet (in years, at 17.5 18.5 18.7 20.0 21.0 20.3 21.3
period end)..........................
</TABLE>
(a) Net revenue is gross revenues from time charters net of charter commissions
and voyage related expenses.
(b) Operating expenses include, among other things, the amortization of
drydocking expenses, the amortization of special survey costs and
management fees.
(c) In 1993, the Company purchased the Clipper Atlantic and the Clipper
Pacific. In 1995, the Company purchased the Clipper Golden Hind. In 1996,
the Company purchased the Monica Marissa and the Clipper Harmony.
-31-
<PAGE>
Concentration of Voting Power
MMI is the sole shareholder of Millenium. As of the Original Issue Date,
Millenium Investment, a Cayman Islands company, and Millenium Advisors, L.L.C.,
a New York limited liability company, beneficially owned in the aggregate
approximately 44% of the outstanding common stock of MMI. The sole director of
Millenium Investment also serves as the managing member of Millenium Advisors.
See "Principal Stockholders."
Dependence on Key Personnel
The Company is dependent upon a limited number of senior executives for the
principal decisions with respect to the Company's activities. The loss or
unavailability of the services of any such person for any significant period of
time could have a materially adverse effect on the Company's business and
results of operations. See "Officers and Directors."
Withholding Tax
All payments by the Company or any Subsidiary Guarantor with respect to the
Notes or the related Guarantees will be made without withholding or deduction
for taxes imposed by any jurisdiction in which the Company or any of the
Subsidiary Guarantors is then incorporated or resident for tax purposes unless
required by law or the interpretation or administration thereof, in which case,
the Company will, except in certain circumstances, (i) pay such additional
amounts as may be necessary so that the net amount received by the Holders after
such withholding or deduction will not be less than the amount that would have
been received in the absence of such withholding or deduction or (ii) if the
payments in respect of the Notes become subject to taxes imposed by the Cayman
Islands, Cyprus or Liberia, redeem the Notes at 100% of the Accreted Value
thereof, plus accrued and unpaid interest to the date of such redemption. See
"Description of the Exchange Notes- -Additional Amounts" and "Description of the
Exchange Notes--Redemption for Changes in Withholding Taxes." The Company has
been advised by legal counsel, Maples and Calder, with regard to the laws of the
Cayman Islands, Andreas Demetriades Law Office, with regard to the laws of
Cyprus and the Law Offices of Basil T. Patkos with regard to the laws of
Liberia, that the Cayman Islands, Cyprus and Liberia will not impose, under
present laws, any withholding taxes on payments by the Company or any Subsidiary
Guarantor. Prospective Holders should consult their tax advisors respecting the
implications of taxation before investing in the Notes. See "Certain United
States Federal Income Tax Consequences" and "Certain Foreign Tax
Considerations."
Currency Risks
All the Company's revenue and most of its expenses are denominated in
United States dollars. However, the Company has incurred and will continue to
incur expenses in other currencies, particularly Greek drachmae. For the year
ended December 31, 1997, total expenses incurred in Greek drachmae accounted for
approximately 10% of the total expenses incurred in such period. While the
Unites States dollar has generally appreciated against the Greek drachma in
recent years, it has also depreciated from time to time. Depreciation in the
value of the United States dollar relative to the Greek drachma would increase
the United States dollar cost to the Company of paying such expenses and thus
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the portion of the Company's business conducted
in other currencies will not increase in the future, which could expand the
Company's exposure to losses arising from currency fluctuations. The Company has
not historically hedged its exposure to foreign currency fluctuations.
Absence of Public Market for the Exchange Notes
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for the Exchange
Notes. The Exchange Notes will constitute a new issue of securities with no
established trading market. Although the Exchange Notes will be permitted to be
resold or otherwise transferred by Holders who have met the conditions of the
Exchange Offer without compliance with the registration requirements under the
Securities Act, Millenium does not intend to list the Exchange Notes on any
securities exchange or to seek the admission thereof to trading on the Nasdaq
National Market. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the existence of or
liquidity of the trading market for the Exchange Notes. See "Plan of
Distribution."
Historically, the market for securities such as the Exchange Notes has been
subject to disruptions that have caused substantial volatility in the prices of
such securities. There can be no assurance that, if a market for the Exchange
Notes were to develop, such a market would not be subject to similar
disruptions. Such disruptions may materially and adversely affect holders of the
Exchange Notes.
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<PAGE>
Exchange Offer Procedure
The issuance of the Exchange Notes pursuant to the Exchange Offer will be
made only after a timely receipt by the Company or its agents of a properly
completed and duly executed Letter of Transmittal, or an agreement to be bound
thereby, and all other required documents. Therefore, Holders of Existing Notes
desiring to tender such Existing Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to tenders of
Existing Notes for Exchange Notes. Existing Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions on transfer thereof,
and upon consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any Holder
of Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the liquidity of untendered and
tendered but unaccepted Existing Notes could be adversely affected. See "The
Exchange Offer."
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<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Existing Notes were issued by Millenium in July 1998, to Credit Suisse
First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation
(the "Initial Purchasers"). The Initial Purchasers subsequently placed the
Existing Notes with (i) persons whom they reasonably believe to be QIBs (as
defined in Rule 144A) in reliance on Rule 144A under the Securities Act and (ii)
directly, or through their international affiliates, in offshore transactions
complying with the requirements of Rule 903 or Rule 904 of Regulation S under
the Securities Act. As a condition to the purchase of the Existing Notes by the
Initial Purchasers, Millenium and the Subsidiary Guarantors entered into the
Registration Rights Agreement with the Initial Purchasers, which requires, among
other things, that promptly following the sale of the Existing Notes to the
Initial Purchasers, the Company would (i) file with the Commission a
registration statement under the Securities Act with respect to a registered
offer to exchange the Existing Notes for the Exchange Notes of Millenium
identical in all material respects to the Existing Notes, (ii) use its best
efforts to cause such registration statement to become effective under the
Securities Act within 150 days after the Original Issue Date and (iii) use its
best efforts to cause the Exchange Offer to be consummated. The Company has
agreed to keep the Exchange Offer open for 30 days with the right to extend the
Exchange Offer up to a maximum of 60 days.
Following the consummation of the Exchange Offer, Holders of the Existing
Notes who did not tender their Existing Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
Existing Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Existing Notes could be
adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Existing Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue up to
$100,000,000 principal amount at maturity of Exchange Notes in exchange for a
like principal amount at maturity of outstanding Existing Notes accepted in the
Exchange Offer. Holders may tender all or a portion of their Existing Notes
pursuant to the Exchange Offer. However, Existing Notes may be tendered only in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
The form and terms of the Exchange Notes will be identical to the form and
terms of the Existing Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the Holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Existing Notes tendered in exchange
therefor and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
at maturity of the Existing Notes was outstanding and registered in the name of
Cede & Co., as nominee for DTC. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, the Letter of Transmittal and
the Notice of Guaranteed Delivery will be mailed initially.
Holders of Existing Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Existing
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company has agreed to pay all
charges and expenses in connection with the Exchange Offer.
-23-
<PAGE>
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
Interest on the Exchange Notes
The Exchange Notes will be deemed to accrue interest from July 24, 1998
(the date of original issuance of the Existing Notes) or from the date of the
last periodic payment of interest on such Existing Notes, whichever is later.
Interest on the Exchange Notes will be payable semi-annually on each January 15
and July 15, commencing on January 15, 1999.
Procedures for Tendering
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, a Holder must either (i)
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed (if required by the Letter of Transmittal) and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
or (ii) in the case of a book-entry transfer, confirm book-entry transfer of the
Existing Notes into an equal principal amount at maturity of Exchange Notes into
the Exchange Agent's account at DTC, in either case prior to 5:00 p.m., New York
City time, on the Expiration Date. To be tendered effectively, the Existing
Notes, Letter of Transmittal and other required documents must be received by
the Exchange Agent at the address set forth below under "--Exchange Agent" or,
if book-entry transfer is used, electronic instructions with regard to the
Existing Notes, the Letter of Transmittal and all other required documents must
be received by DTC, in each case prior to 5:00 p.m., New York City time, on the
Expiration Date. A Holder of Existing Notes may also tender in the Exchange
Offer by complying with the procedure set forth under "--Guaranteed Delivery
Procedures."
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Existing Notes at DTC for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of the Existing Notes
by causing DTC to transfer such Existing Notes into the Exchange Agent's account
with respect to the Existing Notes in accordance with DTC's procedures for such
transfer.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Existing Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of, and
agrees to be bound by, the Letter of Transmittal.
By executing or electronically confirming the Letter of Transmittal, each
Holder will make to the Company the representations set forth below in the
second paragraph under "--Resale of Exchange Notes."
The tender by a Holder and the acceptance thereof by the Company will
constitute agreement between such Holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, TO THE EXCHANGE AGENT
IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR EXISTING NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST REGISTRATION COMPANIES OR NOMINEES TO EFFECT
THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
-24-
<PAGE>
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Existing Notes listed therein, such Existing Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Existing
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company, in its reasonable discretion,
which determination will be final and binding. The Company reserves the absolute
right to reject any and all Existing Notes not properly tendered or any Existing
Notes the acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Existing Notes, none of the
Company, the Exchange Agent or any other person shall incur any liability for
failure to give such notification. Tenders of Existing Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Existing Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Guaranteed Delivery Procedures
Holders not holding through DTC or Cede & Co. who wish to tender their
Existing Notes and (i) whose Existing Notes are not immediately available, (ii)
who cannot deliver their Existing Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer, prior to the Expiration Date, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Existing Notes
and the principal amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date or the execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Existing Notes (or a confirmation of
book-entry transfer of such Existing Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility) and any other documents required by the Letter
of Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Withdrawals of Tenders
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
-25-
<PAGE>
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal (or a written or electronic ATOP
transmission notice of withdrawal for DTC participants) must be received by the
Exchange Agent at its address set forth herein (or received into the Exchange
Agent's account at DTC) prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn, (iii) be signed or confirmed
by the Holder in the same manner as the original signature on or confirmation of
the Letter of Transmittal by which such Existing Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Existing Notes register the
transfer of such Existing Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Existing Notes are to be
registered, if different from that of the Depositor. If Existing Notes have been
delivered pursuant to the procedures for book-entry transfer described above,
any notice of withdrawal must also specify the name and number of the account at
DTC, and must otherwise comply with DTC's procedures. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Existing Notes so withdrawn are
validly untendered. Any Existing Notes which have been tendered but which are
not accepted for exchange, will be returned to the Holder thereof without cost
to such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
untendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange any Exchange Notes for, any
Existing Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Existing Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company has occurred which, in the
sole judgment of the Company might materially impair the ability of the
Company to proceed with the Exchange Offer; or
(c) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(e) the Company believes there has been a change in law or applicable
interpretation thereof by the staff of the Commission such that the
Exchange Notes to be received by Holders in the Exchange Offer would not
be, upon receipt, transferable by each such Holder (other than any Holder
who is an affiliate of the Company, who acquires the Exchange Notes outside
the ordinary course of its business or who has any arrangement or
understanding with any person to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes) without restrictions under the
Securities Act.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Existing
Notes and return all tendered Existing Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Existing Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of Holders to
withdraw such Existing Notes (see "--Withdrawals of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Existing Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten Business Days if the
Exchange Offer would otherwise expire during such five to ten-day period. All
conditions,
-26-
<PAGE>
other than governmental approval, must be satisfied on or prior to the
expiration of the Exchange Offer in order to consummate the Exchange Offer.
Exchange Agent
The First National Bank of Maryland has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance or for additional
copies of this Prospectus, the Letter of Transmittal or the Notice of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
By Hand: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
By Overnight Mail or Courier: 25 South Charles Street
Mail Code 101-591
Baltimore, MD 21201
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and their affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any payments to brokers or
others soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and pay other registration expenses, including fees and expenses of the Trustee,
filing fees, blue sky fees and printing and distribution expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid or reimbursed by the Company and are estimated in the
aggregate to be in excess of $120,000.
Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Existing Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered Holder of the Existing Notes
tendered, or if tendered Existing Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Existing Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Holder or any other person) will be payable by the tendering
Holder.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Existing Notes, which is face value, as reflected in the accounting records of
the Company on the date of exchange. Accordingly, no gain or loss for accounting
purposes will be recognized.
Resale of Exchange Notes
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Existing Notes
may be offered for resale, resold or otherwise transferred by any Holder of such
Exchange Notes (other than any such Holder which is an "affiliate" of the
Company within the meaning
-27-
<PAGE>
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any Holder who is an affiliate of the Company, who acquires the
Exchange Notes outside the ordinary course of its business or who tenders in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co. Incorporated
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holder's information required by the applicable provisions
of Item 507 or 508, as appropriate, of Regulation S-K of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, (ii) the Holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder acknowledges that if it participates in the
Exchange Offer for the purpose of distributing the Exchange Notes (a) it must,
in the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters referenced
above and (b) failure to comply with such requirements in such instance could
result in such Holder incurring liability under the Securities Act for which
such Holder is not indemnified by the Company. Further, by tendering in the
Exchange Offer, each Holder represents to the Company either that it is not an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company or,
if it may be deemed an "affiliate" of the Company that such Holder understands
and acknowledges that the Exchange Notes may not be offered for resale, resold
or otherwise transferred by that Holder without complying with the applicable
registration and prospectus delivery requirements of the Securities Act. A
Holder who is a broker-dealer must also acknowledge to the Company that it
acquired the Existing Notes as a result of market-making activities or other
trading activities.
Consequences of Failure to Exchange
As a result of the making of this Exchange Offer, the Company generally
will have fulfilled its obligations under the Registration Rights Agreement, and
Holders of Existing Notes who do not tender their Existing Notes generally will
not have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder of Existing Notes that does not exchange
such Existing Notes for Exchange Notes will continue to hold such Existing Notes
and will be entitled to all the rights, and subject to all the limitations,
applicable thereto under the Indenture, except to the extent such rights or
limitations, by their terms, terminate or cease to have further effectiveness as
a result of the Exchange Offer.
Existing Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to Millenium (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Existing Notes are eligible for resale
pursuant to Rule 144A, to a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
Rule 144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder or (v) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Because the Exchange Offer is for any and all Existing Notes, the number of
Existing Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Existing Notes outstanding. As a result, the liquidity of
any remaining Existing Notes may be substantially reduced.
Other
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Thacher Proffitt & Wood, New York, New
York, as counsel for the Company, has passed upon the legality of the Exchange
Notes. None of the Company or any of their respective representatives is making
any representation to any offeree of the Exchange Notes offered hereby regarding
the legality of an investment by such offeree or purchaser under appropriate
legal investment or similar laws (which regulate the nature and extent of
permitted
-28-
<PAGE>
investments in certain securities for certain institutional investors).
Each Holder of the Existing Notes should consult with its own advisors as to
legal, tax, business, financial and related aspects of participation in the
Exchange Offer.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's obligations
under the Registration Rights Agreement. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Existing Notes in like principal amount at
maturity, the form and terms of which are substantially the same as the form and
terms of the Exchange Notes, except as otherwise described herein. The Existing
Notes surrendered in exchange for the Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of the Company.
-29-
<PAGE>
CAPITALIZATION
The following table sets forth the actual combined capitalization of the
Company at March 31, 1998 and as adjusted to give effect to the issuance of the
Existing Notes, the Equity Contribution, the acquisition of the Committed
Vessels and the repayment of the indebtedness on the Existing Vessels. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Combined Financial
Statements, included elsewhere in this Prospectus.
As of March 31, 1998
------------------------------
Actual As Adjusted
------------- ---------------
(dollars in millions)
Cash and cash equivalents ....... $ 0.3 $ 31.5(a)
======= ========
Short-term debt(b):
Current portion of long-term debt $ 3.8 $ --
Long-term debt:
Bank indebtedness ............... 9.0 --
Existing Notes, net of discount . -- 95.4(c)
------- --------
Total debt ................ 12.8 95.4
Stockholders' equity ............ 1.0 24.1(c)
------- --------
Total capitalization ............ $ 13.8 $ 119.5
======= ========
Millenium was incorporated on March 10, 1998. As of the Original Issue
Date, Millenium had 10,000,000 shares of Common Stock, par value $.01 per
share authorized, of which 9,500,000 shares were issued and outstanding.
(a) This amount was placed into the Escrow Account for the purchase of
Additional Vessels and pay deposits, transaction fees and expenses and, if
necessary, to make vessel upgrades. In addition, pending actual delivery of
any Committed Vessels that have not been purchased as of the date of this
Prospectus, funds for the purchase of such Committed Vessels will be
temporarily held in the Escrow Account.
(b) The Company has obtained a working capital facility from The Bank of New
York (the "Working Capital Facility") which includes a $7.0 million
committed revolving line of credit, in order to provide further liquidity
to the Company. No amounts are currently outstanding under such Working
Capital Facility.
(c) Of the $96.6 million gross proceeds from the issuance of the Existing
Notes, $95.4 million was allocated to the Notes and $1.2 million was
allocated to additional paid-in capital to reflect the issuance of warrants
to purchase in the aggregate 500,000 shares of Millenium common stock at an
exercise price of $.01 per share (the "Warrants"). Stockholders' equity has
been reduced by $1.1 million to reflect the estimated issuance costs
allocated to the Equity Contribution. No assurance can be given that the
value allocated to the Warrants was or will be indicative of the price at
which the Warrants may actually trade.
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<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION OF THE COMPANY
(in thousands, except ratios and operating data)
The Selected Combined Financial Information set forth below for the Company
for the three years ended December 31, 1995, 1996 and 1997 and as of December
31, 1996 and 1997 has been derived from the Company's audited combined financial
statements and related notes thereto which were prepared in accordance with
United States generally accepted accounting principles. Such combined financial
statements have been audited by Coopers & Lybrand, independent accountants, as
stated in their report included elsewhere in this Prospectus and should be read
in conjunction therewith. The selected combined statement of income data of the
Company set forth below for the two years ended December 31, 1993 and 1994 and
combined balance sheet data as of December 31, 1993, 1994 and 1995 have been
derived from the Company's audited combined financial statements not included in
this Prospectus. The selected combined financial information for the three
months ended March 31, 1997 and 1998 has been derived from the Company's
unaudited combined financial statements. In the opinion of management the
unaudited combined financial statements of the Company have been prepared on the
same basis as the audited combined financial statements included herein and
include all adjustments necessary for the fair presentation of the financial
position and results of operations for the Company for these periods, which
adjustments are only of a normal recurring nature. The results of operations for
the three months ended March 31, 1998 are not necessarily indicative of results
that may be expected for a full year.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
March 31,
---------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue(a) ......................... $ 2,585 $ 3,110 $ 4,633 $ 10,367 $ 10,518 $ 2,714 $ 2,596
Operating expenses(b) .................. 1,405 1,794 2,843 6,267 7,339 1,714 1,721
-------- -------- -------- -------- -------- -------- --------
Vessel operating income ............ 1,180 1,316 1,790 4,100 3,179 1,000 875
Interest expense, net .................. 384 392 690 1,159 1,215 301 274
Other (income)/expense, net ............ (1) (9) 31 234 116 10 13
Depreciation ........................... 620 782 1,099 2,034 2,367 592 592
-------- -------- -------- -------- -------- -------- --------
Net income/(loss) .................. $ 177 $ 151 $ (30) $ 673 $ (519) $ 97 $ (4)
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
Capital expenditures(c) ............... 6,140 -- 5,800 10,402 -- -- --
Ratio of earnings to fixed charges(d) 1.5x 1.4x 1.0x 1.6x -- 1.3x 1.0x
Balance Sheet Data (at period end):
Net book value of vessels ............. $ 5,520 $ 4,746 $ 9,446 $ 17,814 $ 15,447 $ 17,222 $ 14,855
Total assets .......................... 5,776 5,089 10,257 18,994 17,241 18,496 17,219
Total debt ............................ 5,343 4,403 8,471 15,583 12,956 14,691 12,828
Shareholders' equity .................. 179 202 634 1,514 995 1,612 991
Operating Data:
Number of drybulk carriers (at period 2 2 3 5 5 5 5
end).................................
Average TCE per vessel per day(e) ..... $ 4,381 $ 4,443 $ 5,030 $ 6,582 $ 6,010 $ 6,203 $ 5,934
Average vessel running cost per vessel 2,246 2,237 2,746 3,368(g) 3,400(g) 3,505(g) 3,098
per day(f)...........................
Utilization(h) ........................ 99.0% 99.0% 100.0% 100.0% 96.0%(i) NA NA
Revenues from time charter ............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Average dwt per vessel (at period end) 7,923 7,923 10,802 20,835 20,835 20,835 20,835
Average age of fleet (in years, at 17.5 18.5 18.7 20.0 21.0 20.3 21.3
period end)..........................
</TABLE>
(a) Net revenue is gross revenues from time charters net of charter commissions
and voyage related expenses.
(b) Operating expenses include, among other things, the amortization of
drydocking expenses, the amortization of special survey costs and
management fees.
(c) In 1993, the Company purchased the Clipper Atlantic and the Clipper
Pacific. In 1995, the Company purchased the Clipper Golden Hind. In 1996,
the Company purchased the Monica Marissa and the Clipper Harmony.
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<PAGE>
(d) Ratio of earnings to fixed charges is calculated as pre-tax net income from
continuing operations plus fixed charges (i.e., interest expense, net)
divided by fixed charges. Earnings in December 1997 and the three months
ended March 1997 were insufficient to pay fixed charges by $0.5 million and
$0.1 million, respectively.
(e) The Company uses the TCE as a method of identifying net revenues earned on
a daily basis by its vessels assuming 350 days per calendar year.
(f) Vessel running cost is operating expenses less drydocking expenses and
management fees.
(g) In 1996 and in 1997, the Company made significant upgrades to the Monica
Marissa and the Clipper Harmony, respectively, the costs of these upgrades
resulted in an increase in the vessel running costs for these years.
(h) Utilization is calculated on the basis that vessel employment for 350 days
per calendar year equaling 100% utilization.
(i) In 1997, utilization was negatively impacted by upgrades made to the
Clipper Harmony.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
The unaudited pro forma condensed consolidated balance sheet data set forth
below for the Company as of December 31, 1997, is based on the audited
historical combined balance sheet of the Group of Shipping Companies acquired by
Millenium (the Subsidiary Guarantors that own the Existing Vessels) as of
December 31, 1997, after giving effect to: (i) the acquisition of the Subsidiary
Guarantors that own the Existing Vessels as if it had occurred at December 31,
1997, (ii) the consummation of the offering of the Existing Notes and Warrants
as if it had occurred at December 31, 1997, (iii) the contribution of equity to
the Company by the sole stockholder of Millenium as if it had occurred at
December 31, 1997, (iv) the acquisition of Committed Vessels as if it had
occurred at December 31, 1997 and (v) the resultant pro forma adjustments
described in the notes below. The unaudited pro forma condensed consolidated
income statement data set forth below for the Company for the year ended
December 31, 1997, is based on the audited historical combined income statement
data of the Company for the year ended December 31, 1997, after giving effect to
(i) the issuance of the Existing Notes and Warrants as if it had occurred on
January 1, 1997 and (ii) the resultant pro forma adjustments described in the
notes below.
The unaudited pro forma condensed consolidated financial data are based
upon and should be read in conjunction with the assumptions set forth in the
accompanying notes. The unaudited pro forma condensed consolidated financial
data are intended for information purposes only and are not necessarily
indicative of the results that would have actually occurred had the transactions
described above occurred on the dates indicated, or of any future results. The
unaudited pro forma condensed consolidated financial data are based upon
assumptions that the Company believes are reasonable and should be read in
conjunction with the Combined Financial Statements and the notes thereto of the
Group of Shipping Companies acquired by Millenium included elsewhere in
this Prospectus.
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<PAGE>
Pro Forma Balance Sheet Data
<TABLE>
<CAPTION>
Group of Shipping Companies
Acquired by Millenium (Subsidiary
Guarantors that own Existing Vessels)
-------------------------------------------
Pro Forma as of
December 31, As December 31,
1997 Adjustments Adjusted Adjustments 1997
-------------- -------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......... $135 $135 $96,593 (b) $31,591
7,100 (c)
(12,956)(d)
(53,681)(e)
(5,600)(f)
Cash and retention accounts........ 193 193 193
------- ------- --------
328 328 31,784
Receivable: claims and other............ 27 27 27
Inventories and prepaid expenses... 68 68 18 (e) 86
Due from related party.................. 722 722 722
------- ------ ------- -------- --------
Total current assets............... 1,145 1,145 32,619
Deferred charges, net of accumulated
amortization....................... 649 649 4,500 (f) 5,399
250 (e)
Vessels at cost, net of accumulated
depreciation....................... 15,447 1,028 (a) 16,475 66,313 (e) 82,788
Intangible assets....................... 1,977 (a) 1,977 1,977
------- ------ ------- -------- --------
Total assets....................... $17,241 $3,005 $20,246 $102,537 $122,783
======= ====== ======= ======== ========
Current liabilities:
Trade accounts payable.................. 2,315 2,315 2,315
Other liabilities....................... 785 785 785
Charter revenues received in advance.... 190 190 190
------- ------- --------
3,290 3,290 3,290
Long term debt, current portion......... 3,441 3,441 (3,441)(d) --
------- ------- -------- --------
Total current liabilities.......... 6,731 6,731 3,290
Long term debt, net of current portion,
less unamortized discount.......... 9,515 9,515 100,000 (b) 95,393
(4,607)(b)
98,683
(9,515)(d)
Total liabilities.................. 16,246 16,246 82,437
------- ------- -------- --------
Shareholder's equity:
Common stock and paid-in capital........ 880 3,120 (a) 4,000 1,200 (b)
7,100 (c)
12,900 (e)
(1,100)(f) 24,100
Retained earnings....................... 115 (115)(a) -- --
------- ------ ------- -------- --------
Total shareholders' equity......... 995 3,005 4,000 20,100 24,100
------- ------ ------- -------- --------
Total liabilities and shareholders'
equity............................. $17,241 $3,005 $20,246 $102,537 $122,783
======= ====== ======= ======== ========
</TABLE>
Pro Forma Balance Sheet Adjustments
- - - - - - -----------------------------------
(a) Adjustment to fair value upon acquisition by Millenium including an
intangible comprising of excess cost over book value.
(b) Issuance of Existing Notes of $100,000 (less unamortized discount of
$4,607) and Warrants of $1,200.
(c) Issuance of cash equity to MMI: $6,100 from Millenium Investment, Inc. and
$1,000 from Management and affiliates.
(d) Repayment of debt on Existing Vessels.
(e) Acquisition of Committed Vessels and issuance of $12,900 of equity.
ESCO Clipper Other Total
-------------------------------------------
Cash (12,813) (7,868) (33,000) (53,681)
Vessels 16,813 9,500 40,000 66,313
Deferred charges, etc -- 268 -- 268
------- ------- ------- -------
Equity 4,000 1,900 7,000 12,900
------- ------- ------- -------
(f) Transaction costs of $5,600 allocated between issuance of Existing Notes
and equity (common stock and Warrants)
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<PAGE>
Pro Forma Income Statement Data
<TABLE>
<CAPTION>
Group of Shipping Companies Acquired by Millenium
(Subsidiary Guarantors that own Existing Vessels)
----------------------------------------------------------
Pro forma as of
December 31, 1997 Adjustments December 31, 1997
----------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Freight and hire from voyages 11,285 11,285
Voyage expenses (172) (172)
Commission (595) (595)
--------- --------
Net revenue 10,518 10,518
Expenses:
Vessel operating expenses 6,204 6,204
Management fees 896 896
Depreciation and amortization 2,606 643 (b)(i) 3,531
282 (c)
Total 9,706 925 10,631
--------- -------- --------
Operating Income $ 812 $ (925) $ (113)
========= ======== ========
Other Income (Expense)
Interest expense (1,215) 1,215 (a) (12,437)
(12,000)(d)
(437)(b)(ii)
Other (116) (116)
--------- -------- --------
Total (1,331) (11,222) (12,553)
--------- -------- --------
Net (Loss) $ (519) $(12,147) $(12,666)
========= ======== ========
Per share data
(Basic and fully diluted)
Net (Loss) Per Share (e) (0.05) (1.33)
</TABLE>
Pro Forma Income Statement Adjustments
- - - - - - --------------------------------------
(a) Elimination of interest expense associated with previous debt.
(b) (i) Amortization of transaction costs associated with Existing Notes
($4,500 over the life of the Notes).
(ii) Amortization of discount on Existing Notes (using effective interest
rate method).
(c) Amortization of intangible assets (comprising excess of cost over net
assets acquired) of $1,977.
(d) Interest expense on Existing Notes at 12%. (e) Net loss per share has been
computed using 9,500 shares, the total outstanding common shares of
Millenium at July 24, 1998.
-35-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is an international shipping company that currently owns and
operates a fleet of drybulk carriers that transport bulk cargo worldwide. The
Company has built a reputation as an efficient operator with experienced
commercial and technical management. The aggregate appraised value of the
Company's Existing Vessels is $16.5 million based on the average of two
appraisals, one performed by a Designated Appraiser in February 1998 and the
other performed by a Designated Appraiser in June 1998.
The Company operates in and derives its revenue from the drybulk market,
which has been cyclical in varying degrees, experiencing fluctuations in freight
rates, profitability and, consequently, vessel values. The Handysize drybulk
carrier market, however, is less volatile than certain other shipping markets,
due to the versatility of such vessels. The fluctuations in the drybulk market
have been primarily due to changes in the level and pattern of global economic
growth, the highly competitive nature of the world shipping industry and changes
in the supply of and demand for seaborne shipping capacity. The aggregate
appraised value of the Existing Vessels has been affected by the significant
drop in the drybulk vessel values towards the end of 1997 and during the early
part of 1998.
As a result of the Company's strategy of emphasizing dedicated service and
customer service and, by maintaining all of its vessels on period time charter,
the Company has been successful in maintaining a steady stream of revenues
despite the decline in the shipping market. In May 1995, the Company purchased
the Clipper Golden Hind and immediately placed it on a period time charter. As a
result of the satisfactory service provided to the charterer of the Clipper
Golden Hind, one year later the Company acquired a sister vessel, the Clipper
Harmony, and placed her on a period time charter with the same charterer. In
February 1996, the Company purchased the Monica Marissa, and promptly entered
into a period time charter pursuant to which she has been employed since her
acquisition. During 1995 and continuing through 1997, the Clipper Atlantic and
Clipper Pacific continued on their period time charters, which had been extended
since their acquisition by the Company in 1993. As part of the Company's policy
of hedging against further declines in the drybulk market, the Company
successfully negotiated extensions through at least February 1999 on the
charters for each of the Existing Vessels that would otherwise have expired in
1998. The Existing Vessels are now contractually able to continue on their
employment through at least February 1999.
The Company uses (i) Average Daily Time Charter Rate ("ADTR") to analyze
the average contracted daily charter rate that a vessel earns in a fiscal year,
(ii) utilization as an index that indicates vessel earning days on the basis
that 350 days per calendar year equals 100% utilization and (iii) the average
daily TCE rate to analyze net revenues after commissions on the basis of 350
days per year utilization. To the extent utilization is 100% the TCE equals the
ADTR. When utilization drops below 100%, TCE is lower than ADTR. From 1993
through 1997, all of the Company's earning were based on period time charters,
and the Company's ADTR for the 5 years were $4,525, $4,610, $5,377, $6,823 and
$6,672 per day, respectively.
Vessel operating expenses primarily consist of crew wages, victualing,
components and spares, repairs and maintenance, insurance costs (including hull
and machinery and liability), lubricants, crew travel and repatriation,
telephone and radio maintenance, amortization of scheduled drydocking and
special surveys and management fees. Crewing costs, management fees and
insurance expenses are generally fixed for each financial period and typically
have little effect on fluctuations in operating expenses between periods. The
expenses of components and spares, repairs and maintenance, however, can vary
from period to period.
The estimated costs of drydocking are amortized over a period of two and
one half years. Vessel capital expenditures are amortized over a period
commencing on the date the expenditure was made until the date of the related
vessel's next drydocking.
In the periods discussed herein, each of the Existing Vessels received
management services from Kylco Greece, one of the Company's affiliates, pursuant
to a Management Agreement (each, a "Kylco Management Agreement") between each
Subsidiary Guarantor owning such Existing Vessel and Kylco Greece. Under each
Kylco Management Agreement, Kylco Greece acted as the fleet's technical manager
(i) providing qualified officers and crews, (ii) managing day-to-day vessel
operations and relationships with charterers, (iii) purchasing stores, supplies
and new equipment for the vessels, (iv) performing general vessel maintenance,
reconditioning and repair, including commissioning and supervision of shipyards,
subcontractors or drydock facilities required for such work, (v) ensuring
regulatory and classification society compliance, (vi) performing vessel
operational budgeting and evaluation, (vii) arranging financing for vessels and
(viii) providing accounting, treasury and finance functions (including cash
collections and disbursements). As remuneration for its services, Kylco Greece
received a fixed management fee (payable monthly in advance). Pursuant to the
New
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<PAGE>
Management Agreement these services are now performed by MMI, which subcontracts
these services to KYLCO. See "Certain Transactions--New Management Agreement."
In addition, under each Kylco Management Agreement, Kylco Greece performed
commercial management functions, primarily charter negotiating and vessel sale
and purchase brokerage. Kylco Greece received a commission of 1% on the gross
sale or purchase price of a vessel for brokerage services. The Company has
deducted commissions paid to Kylco Greece in its calculation of net revenue.
Pursuant to the New Management Agreement these services are now performed by
MMI, which subcontracts these services to KYLCO. See "Certain Transactions--New
Management Agreement."
Results of Operations
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Net Revenue. Net revenue in the quarter ended March 31, 1998 was $2.6
million, a decrease of $118,000 as compared to the quarter ended March 31, 1997.
The ADTR for the Existing Vessels was $6,413 per day for the quarter ending
March 31, 1998 and $6,769 per day for the quarter ending March 31, 1997. The
ADTR was lower in the quarter ended March 31, 1998 due to the following:
(i) A reduction in the period charter rate for the Monica Marissa from
$10,000 per day to $9,500 per day in February 1997. In addition, an
agreement was reached with Sunbulk (a wholly owned shipping subsidiary of
Cemex) to further reduce the charter rate to $8,750 per day in April 1997
and to extend the charter for a period commencing February 24, 1998 for a
further 12-month period at $7,250 per day.
(ii) A reduction in the actual charter rates for the Clipper Atlantic
and the Clipper Pacific to $4,300 per day from $4,520 per day effective
February 1998 and March 1998, respectively, in return for a further
12-month extension of both vessels' period time charters until February
1999 and March 1999, respectively.
Operating Expenses. Total vessel operating expenses in the quarter ended
March 31, 1998 were $1.7 million, which remained the same as compared to the
quarter ended March 31, 1997.
Depreciation. Total depreciation for the quarter ended March 31, 1998 was
$0.6 million which remained the same as compared to the quarter ended March 31,
1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
Unless otherwise indicated, the change in 1997 results as compared to 1996
is attributable to the acquisition in 1996 of the Monica Marissa and the Clipper
Harmony which contributed to revenues for 311 and 228 days, respectively, for
1996. The remaining three Existing Vessels contributed to revenues for 365 days
for 1996. In 1997, all five Existing Vessels were in service for a full year.
However, in connection with the extension of the charters for the Monica
Marissa, the Clipper Atlantic and the Clipper Pacific through at least February
1999, the Company agreed to a reduction in their charter rates. In addition,
expenses incurred in connection with the improvements made to the Monica Marissa
and the Clipper Harmony further negatively impacted 1997 results.
Net Revenue. Net revenue in 1997 was $10.5 million, an increase of $151,000
as compared to 1996. The ADTR for the Existing Vessels was $6,672 for 1997 and
$6,823 for 1996. While the Company had its vessels on period time charter for
all of 1997; the ADTR was lower in 1997 due to the following:
(i) A reduction in the period charter rate for the Monica Marissa from
$10,000 per day to $9,500 per day in February 1997. In addition, an
agreement was reached with Sunbulk (a wholly owned shipping subsidiary of
Cemex) to further reduce the charter rate to $8,750 per day in April 1997
until February 1998.
(ii) A reduction in the actual charter rates for the Clipper Atlantic
and the Clipper Pacific to $4,520 per day from $4,725 per day effective
February 1997 and March 1997, respectively.
In addition, in 1997 the Company made upgrades to the Clipper Harmony relating
to her external appearance and improvements in her cargo handling system in
response to her charterers' request resulting in the Clipper Harmony being
off-hire for a two-week period.
-37-
<PAGE>
Operating Expenses. Total operating expenses for 1997 were $7.3 million, an
increase of $1.1 million as compared with 1996. A portion of the increase in
operating expenses was attributable to upgrades for the Clipper Harmony. As a
result, the Clipper Harmony was taken out of service in New Orleans, Louisiana
and in Dalien, China for a total period of 15 days, during which time she was
sand blasted and painted and her cargo handling systems were overhauled. In
addition, a portion of the increase in operating costs during 1997 was
attributable to an increase in management fees for 1997 which were $0.9 million,
an increase of $168,000 as compared with 1996. These additional expenses
increased the ratio of operating expenses as a percentage of net revenue in 1997
to 69.8% from 60.5% when compared to 1996.
Interest Expense, Net. Interest expense, net for 1997 was $1.2 million
which remained the same as compared to 1996.
Depreciation. Total depreciation for 1997 was $2.4 million, an increase of
$332,000 as compared to 1996 due the fact that all five vessels were owned for a
full year in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Unless otherwise indicated, the change in the figures below comparing year
end 1996 with year end 1995, is attributable to the acquisition of the Monica
Marissa and the Clipper Harmony in February and May 1996, respectively, and the
Clipper Golden Hind in May 1995.
Net Revenue. Net revenue in 1996 increased by $5.7 million, or 124%, from
$4.6 million to $10.4 million, primarily attributable to the fleet expansion
during 1995 and 1996. The ADTR for the vessels was $6,823 for 1996 and $5,377
for 1995.
Operating Expenses. Total operating expense for 1996 was $6.3 million, an
increase of $3.4 million or 120%, as compared with 1995. The increase in
operating expense was primarily attributable to the addition of vessels in the
fleet. A portion of the increase in operating expenses was attributable to an
increase in management fees for 1996 which were $0.7 million, an increase of
$0.5 million, as compared with 1995. However, operating expenses as a percentage
of net revenue remained steady at approximately 60% for both 1995 and 1996.
Interest Expense, Net. Interest expense, net for 1996 was $1.2 million, an
increase of $469,000 as compared with 1995. This was due to the refinancing of a
portion of the Company's indebtedness, a portion of the proceeds of which were
used for working capital purposes.
Depreciation. Total depreciation for 1996 was $2.0 million, an increase of
$0.9 million, or 85% as compared with 1995, primarily attributable to the fleet
expansion during 1995 and 1996.
Liquidity and Capital Resources
The Company has historically funded its vessel acquisitions through a
combination of long-term bank financing, cash flow from operations and equity
contributions. As of December 31, 1997, the Company had total indebtedness of
$13.0 million ($12.8 million as of March 31, 1998), all of which was secured by
first (and in some cases second) priority ship mortgages on various Existing
Vessels.
On or shortly after the Original Issue Date the Company (i) used
approximately $12.9 million to repay all outstanding bank indebtedness relating
to the Existing Vessels, (ii) committed to use approximately $66.7 million to
purchase the Committed Vessels (includes $5.9 million of contributed vessel
equity based on Appraised Values) from Clipper and ESCO and $7.0 million of
vessel equity with respect to the Millenium Leader, the Millenium Hawk, the
Millenium Eagle, the Millenium Osprey, the Millenium Falcon and the Millenium
Condor), (iii) used approximately $5.6 million to pay certain fees and expenses
incurred in connection with the offering of the Existing Notes and the formation
of MMI and Millenium (including the Equity Contribution) and (iv) placed the
remainder in the Escrow Account to be used to purchase Additional Vessels, pay
deposits and transaction fees and expenses in connection with the Committed
Vessels and the Additional Vessels and, if necessary, to make vessel upgrades on
the Additional Vessels and the Committed Vessels. As of the Original Issue Date,
the Company had no indebtedness outstanding other than the Existing Notes. The
Company believes that based upon current levels of operation and cash flow from
operations, together with other sources of funds (principally in the form of
either debt or equity financing), the Company will have adequate liquidity to
make required payments of principal and interest on the Exchange Notes and the
untendered Existing Notes, if any, complete anticipated capital expenditures and
fund working capital requirements. The Company obtained a working capital
facility in the third quarter of 1998 in order to provide further liquidity to
the Company. To the extent funds are advanced to the Company under such working
capital facility, the Indenture permits amounts to be
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<PAGE>
secured by a lien on the Mortgaged Vessels which will have priority over the
lien in favor of the holders of the Exchange Notes and the untendered Existing
Notes, if any.
Operating Activities. Net cash flows generated by continuing operations
have historically been the main source of liquidity for the Company. Additional
sources of liquidity have included refinancings. Net cash provided by operating
activities for each of 1997 and 1996 was $3.5 million as compared with net cash
provided by operating activities for the year ended December 31, 1995 of $1.4
million. As is common in the shipping industry, the Company collects its hire
for all time charters and period time charters 15 days in advance which has
historically resulted in the Company having low average receivables outstanding.
In addition, the Company has established long-term relationships with many of
its principal suppliers which has resulted in the Company receiving favorable
credit terms.
Investing Activities. The Company has historically acquired its vessels
from the international shipping market, concluding the transactions in two main
stages: (i) a deposit of approximately 10% of the purchase price is paid upon
the execution of the related purchase agreement and (ii) the balance of the
purchase price is paid upon the vessel's physical delivery, usually 30 to 90
days from the date of the execution of the agreement.
Financing Activities. In 1997 the Clipper Pacific and the Clipper Harmony
were refinanced and the proceeds were utilized partly for working capital
purposes of the Company.
Management believes that cash flow operations of the Company, together with
its cash balances and available borrowings, including the proceeds of the
offering of the Existing Notes will be sufficient to service its liquidity
requirements.
Foreign Exchange Rate Fluctuations
All of the Company's revenue, and most of its expenses, are denominated in
United States dollars. For the year ended December 31, 1997, approximately 10%
of the Company's expenses were denominated in foreign currencies, primarily,
Greek drachmae. The Company does not hedge its exposure to foreign currency
fluctuations. Historically, foreign exchange rate fluctuations have had minimal
effect on the Company's financial performance.
Inflation
The Company does not believe that inflation has had a material impact on
its operations, although certain of the Company's operating expenses (such as
crewing, insurance and drydocking costs) are subject to fluctuations as a result
of market forces.
Year 2000 Consequences
As is the case with most companies using computers in their operations, the
Company is faced with the task of addressing the year 2000 issue during the next
year and a half. The year 2000 issue is the result of prior computer programs
being written using two digits, rather than four digits, to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in major system failure or miscalculations. The Company is
presently in the process of evaluating the consequences and the cost of
upgrading its computer software to programs which will be year 2000 compliant.
At this time, the Company expects that the programs affected can and will be
properly modified or replaced by the end of 1999 and while the Company currently
is unable to quantify the overall cost of this work, it does not foresee any
materially adverse effects on the Company's results of operations or financial
conditions as a result of such changes. However, in the event that any of the
Company's suppliers, customers, brokers or agents do not successfully and timely
achieve year 2000 compliance, the Company's business or operations could be
materially adversely affected.
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<PAGE>
SELECTED UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
The Selected Unaudited Consolidated Financial Information set forth
below for the Company for the period commencing July 24, 1998 (the date the
Company's operations commenced) and ending September 30, 1998 has been derived
from the Company's unaudited consolidated financial statements. In the opinion
of management the unaudited consolidated financial statements of the Company
have been prepared on the same basis as the audited combined financial
statements included herein and include all adjustments necessary for the fair
presentation of the financial position and results of operations for the Company
for this period, which adjustments are only of a normal recurring nature. The
results of operations for the three months ended September 30, 1998 are not
necessarily indicative of results that may be expected for a full year.
69-Day Period Ended
September 30, 1998
------------------
Income Statement Data:
Net revenue(a).......................................... $ 3,839
Operating expenses(b)................................... 2,728
Vessel operating income............................. 1,111
Interest expense, net................................... 1,667
Other (income)/expense, net............................. (20)
Depreciation............................................ 975
-------
Net income/(loss)................................... $ (1,511)
========
OTHER FINANCIAL DATA:
Capital expenditures(c)................................ $ 48,656
Ratio of earnings to fixed charges(d).................. ---
BALANCE SHEET DATA (AT PERIOD END):
Net book value of vessels.............................. $ 74,068
Total assets........................................... 124,342
Total debt............................................. 95,520
Shareholders' equity................................... 20,589
OPERATING DATA:
Number of drybulk carriers (at period
end)................................................. 15
Average TCE per vessel per day(e)...................... $ 5,719
Average vessel running cost per vessel
per day(f) .......................................... $ 3,098
Utilization(g)......................................... 95.6%
Revenues from time charter............................. 100.0%
Average dwt per vessel (at period end)................ 26,601
Average age of fleet (in years, at
period end) ......................................... 17.9
(A) Net revenue is gross revenues from time charters net of charter
commissions and voyage related expenses.
(B) Operating expenses include, among other things, the amortization of
drydocking expenses, the amortization of special survey costs and
management fees.
(C) During this period the Company purchased the Millenium Amethyst,
Millenium Yama, Millenium Majestic, Millenium Leader, Millenium Hawk,
Millenium Falcon, Millenium Eagle, Millenium Osprey, Millenium Condor
and Millenium Aleksander.
(D) Ratio of earnings to fixed charges is calculated as pre-tax net income
from continuing operations plus fixed charges (i.E., Interest expense,
net) divided by fixed charges. Earnings for the period commencing July
24, 1998 to September 30, 1998 were insufficient to pay for fixed
charges by $1.51 million.
(E) The Company uses the tce as a method of identifying net revenues earned
on a daily basis by its vessels assuming 350 days per calendar year.
(F) Vessel running cost is operating expenses less drydocking expenses and
management fees.
(G) Utilization is calculated on the basis that vessel employment for 350
days per calendar year equaling 100% utilization.
-40-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is an international shipping company that owns and operates
a fleet of drybulk carriers, primarily Handysize drybulk carriers. The Company's
fleet of 15 vessels as of September 30, 1998, transports drybulk cargo
worldwide.
On July 24, 1998, the Company completed an offering of 100,000 Units
(each Unit comprised of one Unit of $1,000 principal amount at maturity of 12%
First Priority Ship Mortgage Notes due 2005 and one Warrant to purchase five
shares of common stock, par value $0.01 per share, at an exercise price of $0.01
per share). The issue price of the Units to investors was $965.93 representing a
yield to maturity on the Notes of 12 3/4% (computed on a semi-annual bond
equivalent basis calculated from July 24, 1998). Of the $96.6 million in gross
proceeds from the issuance of the Units, $95.4 million has been allocated to the
Notes and $1.2 million has been allocated to additional paid-in capital to
reflect the issuance of Warrants.
Simultaneous with the completion of the offering and issuance of Notes,
the Company received an equity contribution from Millenium Management, Inc.,
MMI, who owns 100% of the outstanding common stock of the Company. This
contribution totaled $24.0 million comprising of $7.1 million in cash and $16.9
million in contributed vessel equity. Of these amounts, as of September 30,
1998, MMI has contributed $7.1 million in cash and $14.9 million in vessel
equity. The remaining $2.0 million in contributed vessel equity represents
vessel equity in respect of the acquisition of the last of the 11 vessels it had
committed to purchase prior to the completion of the offering and issuance of
the Notes (the "Committed Vessels").
Concurrent with the consummation of the offering of the Units, the
Company utilized $12.9 million of net proceeds of $93.2 million to immediately
repay the balance long-term outstanding debt of the five vessels which the
Company acquired through its acquisition of the Group of Shipping Companies (the
"Existing Vessels"). The Company has used $48.5 million to acquire 10 of the 11
Committed Vessels. The Company is implementing its business plan by expanding
from a fleet of five vessels at the inception of operations on July 24, 1998 to
a fleet of 15 vessels as of September 30, 1998.
On July 24, 1998, the Company began operations with the acquisition of
the ship-owning companies which operated the five Existing Vessels (Clipper
Atlantic, Clipper Pacific, Clipper Golden Hind, Clipper Harmony, and Monica
Marissa). By the end of the period ended September 30, 1998, the Company has
acquired 10 of the Committed Vessels (Millenium Amethyst, Millenium Yama,
Millenium Majestic, Millenium Condor, Millenium Osprey, Millenium Leader,
Millenium Hawk, Millenium Falcon, Millenium Eagle, and Millenium Aleksander),
all of which have been successfully delivered to their respective employment
contracts.
<TABLE>
<CAPTION>
Vessel Acquisition Date Date of Delivery to Vessel Flag Purchase Price
- - - - - - ------ ---------------- ------------------- ----------- --------------
Charterer
---------
<S> <C> <C> <C> <C>
Millenium Amethyst July 31, 1998 July 31, 1998 Bahamas 3,000,000
Millenium Yama July 31, 1998 July 31, 1998 Bahamas 3,000,000
Millenium Majestic July 31, 1998 July 31, 1998 Bahamas 3,000,000
Millenium Osprey August 25, 1998 August 28, 1998 Cayman Islands 7,000,000
Millenium Condor August 27, 1998 August 28, 1998 Cayman Islands 5,500,000
Millenium Leader August 27, 1998 August 28, 1998 Cayman Islands 8,250,000
Millenium Eagle August 28, 1998 August 30, 1998 Cayman Islands 6,750,000
Millenium Falcon August 28, 1998 Sept. 1, 1998 Cayman Islands 5,500,000
Millenium Hawk Sept. 16, 1998 Sept. 19, 1998 Cayman Islands 7,000,000
Millenium Aleksander Sept. 16, 1998 Sept. 19, 1998 Cayman Islands 8,687,500
</TABLE>
For the 69-day period under review, (July 24, 1998 through September
30, 1998), all of the Company's net revenue was derived from time charters.
Under a time-charter employment, the charterer pays the owner of the vessel a
fixed daily rate for use of the vessel. Any voyage-related expenses (such as
bunker-fuel consumed for the currency of the voyage, port
-41-
<PAGE>
charges and port agency fees) are also paid by the charterer. However, under a
time-charter, the operating expenses (such as vessel crew wages, victualling,
components and spares, lubricants, maintenance and repair, management fees and
insurance premiums) are paid by the vessel owner. Crewing costs, insurance
premiums and management fees are generally fixed for each financial period and
typically have little effect on fluctuations in operating expenses between
periods. The expenses related to components and spares, lubricants, and
maintenance and repairs, however, can vary periodically, as the Company
replenishes its stock when the stock is low rather than at regular intervals.
All of the Company's vessels are employed on a time-charter basis by
world-class charterers. Four of the five Existing Vessels (Clipper Atlantic,
Clipper Pacific, Clipper Golden Hind, and Clipper Harmony) and three of the ten
Committed Vessels (Millenium Amethyst, Millenium Yama, and Millenium Majestic)
are chartered by Clipper. Five of the Committed Vessels (Millenium Condor,
Millenium Osprey, Millenium Leader, Millenium Hawk, Millenium Falcon, and
Millenium Eagle) are chartered by FedNav. Of the remaining two Committed
Vessels, the Millenium Leader is chartered by HSH of Singapore, and the
Millenium Aleksander is chartered by Estonian Shipping Company.
All of the Company's revenues and most of its expenses are denominated
in U.S. Dollars. For the period ended September 30, 1998, approximately 6% of
its operating expenses were denominated in Greek Drachmas. The Company does not
hedge its exposure to foreign currency fluctuations.
The following benchmarks are used by the Company for its first 69-days
period in operation: (i) utilization as an index that indicates vessel earning
days (on the basis that 350 calendar days per year equals 100% utilization), and
(ii) the average daily time charter equivalent (TCE) rate to analyze net
revenues after commissions on the basis of hire-earning days.
For the period ended September 30, 1998, each of the Company's vessels
received management services from its equity shareholder MMI pursuant to a
Management Agreement among the Company, each of the Company's vessel owning
subsidiaries (the "Vessel Owning Subsidiaries) and MMI. Under the Management
Agreement, MMI acts as the fleet's technical and commercial manager. As a
technical manager, MMI, on behalf of the Vessel Owning Subsidiaries, (i)
provides qualified officers and crews on board vessels, (ii) manages day-to-day
vessel operations and maintains relationships with charterers, (iii) purchases
on behalf of the Company stores, spares, supplies and equipment for vessels,
(iv) performs general vessel maintenance, subcontracts for drydock facilities
for any major repairs and overhauls, (v) ensures regulatory and classification
society compliance, (vi) performs vessel operational budgeting and evaluations,
and (vii) provides accounting, treasury and finance functions (including cash
collections and disbursements on behalf of the Company). As remuneration for its
services, MMI receives a fixed management fee (payable monthly in advance)
ranging from $350 to $600 per day. The Company treats the management fee paid to
MMI as an operating expense.
Under commercial management services, MMI, on behalf of the Vessel
Owning Subsidiaries, primarily maintains and negotiates vessel charters, vessel
sale-and-purchase brokering, and places insurance covers for vessels. As
remuneration for its services, MMI receives a commission of 1.25% on all gross
time charter revenue and 1.75% on all gross spot charter revenue earned by each
vessel managed, 1% on the gross sale or purchase price of a vessel for brokerage
services, and 2% of all insurance coverage placed per vessel managed.
For the 69-day period in review, MMI sub-contracted certain of its
technical and commercial management services to Kylco Maritime Limited and Kylco
Maritime (USA), Inc.
For 46 days of the 69-day period under review two of the Committed
Vessels (Millenium Yama and Millenium Majestic) were operated and technical
management services were provided by an unrelated third party, Dockendale Ship
Management, Inc. of Bermuda. These expenses were paid as incurred. The Company
contracted out the operations and management of these two vessels for the brief
period primarily to facilitate the fleet expansion. Effective September 16, 1998
these two vessels are managed by MMI.
Vessel drydock expenses are amortized over a period of two and a half
years (30 months). Vessel capital expenditures are amortized over a period
commencing on the date of expenditure until the date of the related vessel's
next drydocking. Special survey expenses are amortized over the period of five
years.
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<PAGE>
The Company began its operations on July 24, 1998. As part of the
equity financing, MMI acquired all of the issued and outstanding shares of five
companies that owned the Existing Vessels and contributed them to the Company.
The Company believes that any comparative information of the five companies that
previously owned the Existing Vessels is not relevant and therefore no
comparisons have been made or presented.
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States, that require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and the stated
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
RESULTS OF OPERATIONS
SIXTY-NINE DAYS ENDED SEPTEMBER 30, 1998
OVERVIEW. The Company's net loss was $1.5 million for the period in
review. The following table sets forth certain statement of income and other
operating data for the Company.
Net Revenue $ 3,838,449
Operating Expense 2,398,967
Management Fee Expense 328,960
Operating Income 135,728
Depreciation & Amortization 974,794
Avg. Utilization (%) 95.65%
TCE per day $ 5,719
NET REVENUE. Net Revenue for the 69-day period ended September 30, 1998
was $3.84 million. The Company began earning revenues from July 24, 1998
following the acquisition of five Existing Vessels (Clipper Atlantic, Clipper
Pacific, Clipper Golden Hind, and Clipper Harmony) which are chartered with
Clipper. The Company purchased the 10 Committed Vessels over the period from
July 31, 1998 through September 16, 1998 and these vessels were employed
immediately upon their acquisitions. Three of the ten Committed Vessels
(Millenium Amethyst, Millenium Yama, and Millenium Majestic) are employed by
Clipper. Five other Committed Vessels (Millenium Condor, Millenium Osprey,
Millenium Leader, Millenium Hawk, Millenium Falcon, and Millenium Eagle) are
chartered by FedNav. Of the remaining two Committed Vessels, the Millenium
Leader is chartered by HSH of Singapore, while the Millenium Aleksander is
chartered by ESCO.
The Utilization rate of the Clipper Harmony was impacted negatively as
the vessel was drydocked from September 3, 1998 through September 25, 1998
resulting in a loss of 23 revenue-earning days. In addition to normal drydock
repairs this drydock was extensive as certain repairs to the vessel's propeller
were made which is expected to improve the vessel's performance.
OPERATING EXPENSES. Operating Expenses, excluding management fees and
depreciation and amortization, were $2.4 million for the period under review.
For two of the vessels, the Millenium Yama and the Millenium Majestic, the
amount of $242,000 was paid to an unrelated third-party Dockendale Ship
Management Inc. of Bermuda for management services for the first 46 days since
their acquisition. The Company contracted out the operations and management of
these two vessels for the brief period primarily to facilitate the fleet
expansion. Effective September 16, 1998 these two vessels are managed by MMI.
MANAGEMENT FEES. Management Fees payable to MMI for contracted
technical and commercial management services for the period ended September 30,
1998 were $328,960. This includes a technical management fee of $350 per day per
vessel.
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<PAGE>
DEPRECIATION. Total depreciation for the period in review was $594,074.
Vessel depreciation is calculated based on the remaining useful life of the
vessel, assuming a maximum life of 30 years, net of salvage value.
INTEREST EXPENSE, NET. The first interest payment on the Company's
long-term debt is due on January 15, 1999. Net interest charged for the period
was $1,667,048. The interest earned on cash balances for the period was
$588,953.
NET INCOME (LOSS). Net loss for the period ending September 30, 1998
was $1.5 million, primarily due to the costs associated with the implementation
of the rapid acquisition and delivery of vessels in a short, 69-day, period of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Currently the Company owns all of the issued and outstanding shares of
15 Vessel Owning Subsidiaries. On July 24, 1998, the Company issued $100,000,000
aggregate principal amount at maturity of its 12% secured senior Notes (the
"Offering"). Concurrently with the Offering, the Company (i) repaid
approximately $12.9 million of outstanding bank indebtedness relating to the
acquisition of the companies that own the five Existing Vessels, (ii) paid an
initial $2.1 million in transaction costs and (iii) placed approximately $85.4
million in Escrow. Pursuant to the terms of the Indenture the Company used
approximately $48.5 million to purchase ten Committed Vessels ($640,000 of which
was used for related bunkers, lubricants, stores and drydocking expenses). An
additional $750,000 has been placed in an Escrow Account with the owners of the
eleventh Committed Vessel as deposit for the purchase of the vessel. The
remaining Escrow proceeds are available to fund the purchase of approximately
six Additional Vessels pursuant to the terms of the Escrow Agreement
OPERATING ACTIVITIES. Net cash flows generated from operations for the
period ended September 30, 1998 were $2.9 million. As is common in the shipping
industry, the Company collects its hire for all time charters 15 days in
advance. The Company also has established long-term relationships with many
suppliers resulting in the Company receiving favorable credit terms.
INVESTING ACTIVITIES. Principal investing activities were the
acquisition of the companies which own the Existing Vessels and the purchase of
Committed Vessels. Transactions for the purchase of vessels from the
international shipping market is usually conducted in two stages: (i) a deposit
of approximately 10% of the purchase price is paid upon the execution of the
related purchase agreement, and (ii) the balance of purchase price is paid upon
the vessel's physical delivery, usually within 90 days from the date of the
execution of the agreement.
FINANCING ACTIVITIES. The Company received net proceeds of $96.6
million from the issuance of Notes and Warrants. Of these proceeds approximately
$12.9 million in outstanding principal and accrued interest relating to the
acquisition of the Existing Vessels was paid.
The Company believes that based upon the current level of operation,
cash flow from operations, together with other readily available sources of
funds (the "Working Capital"), it has adequate liquidity to make required
payments of interest on the Company's debt and fund its working capital
requirements.
WORKING CAPITAL . Pursuant to a Credit Agreement between the Company
and The Bank of New York, the Company has a standby line of credit in a
principal amount up to $7,000,000 available for its working capital
requirements. As of September 30, 1998, there are no amounts outstanding under
the facility.
FOREIGN EXCHANGE RATE FLUCTUATIONS
All of the Company's revenue, and most of its expenses, are denominated
in United States dollars. For the period ended September 30, 1998, approximately
6% of the Company's expenses were denominated in foreign currencies, primarily
Greek drachmae. The Company does not hedge its exposure to foreign currency
fluctuations.
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<PAGE>
INFLATION
The Company does not believe that inflation has had a material impact
on its operations during the period in review, although certain of the Company's
operating expenses (e.g. crewing, insurance and drydocking costs) are subject to
fluctuations as a result of market forces. Inflationary pressures on bunker
costs are not expected to have a material effect on the Company's operations
since such costs are paid by the charterers as all of the Company's vessels are
on period time charters.
YEAR 2000 CONSEQUENCES
The Company is presently in the process of analyzing the consequences
and costs of compliance with the Year 2000 problem but does not, at this time,
foresee any materially adverse financial consequence in respect of such
compliance.
-45-
<PAGE>
@@@
THE INTERNATIONAL BULK CARRIER MARKET
Overview
The maritime industry provides one of the most practical and cost effective
means of transporting large volumes of many essential cargoes. It consists of a
number of markets, including the drybulk carrier market in which non-liquid
cargoes are transported in vessels specifically designed and built to carry such
cargoes in bulk. The drybulk carrier market has been cyclical in varying
degrees, experiencing fluctuations in freight rates, profitability and,
consequently, vessel values. These fluctuations have been due primarily to
changes in the level and pattern of global economic growth, the highly
competitive nature of the world shipping industry and changes in the supply of
and demand for seaborne shipping capacity. While each major shipping market in
the world is affected by the same general supply and demand dynamics, each is
ultimately driven by a distinct set of such characteristics.
Vessel Types
Vessels utilized in the transport of drybulk cargoes are generally
classified into three categories based on carrying capacity:
Handysize drybulk carriers (20,000 to 49,999 dwt). Handysize drybulk
carriers are well suited for transporting both major and minor bulk
commodities to ports around the world that may have draft restrictions or
are not equipped with gear for loading or discharging of cargo. Unlike most
larger drybulk carriers, a significant portion of the world fleet of
Handysize drybulk carriers is typically equipped with cargo handling gear
such as cranes.
Panamax bulk carriers (50,000 to 79,999 dwt). Panamax carriers are
designed with the maximum width, length and draft that will allow them to
transit fully laden through the Panama Canal. Panamax carriers are
primarily used in the transport of iron ore, coal and grain. These vessels
are not equipped with cargo handling gear and can only service large ports.
Capesize bulk carriers (80,000 dwt or above). Capesize carriers
transport commodities worldwide but cannot transit the Panama Canal because
of their size. Capesize carriers are primarily used in the transport of
iron ore, coal and, to a lesser extent, grain trades. These vessels are
also not equipped with cargo handling gear and are restricted to even fewer
ports than Panamax bulk carriers.
The supply of drybulk carrier vessels is also supplemented by a small
number of combination carriers, which are typically larger vessels equipped to
carry either crude oil or drybulk cargoes. These vessels are excluded from the
following discussion as their impact on the Handysize drybulk carrier market is
not significant. The Company operates in and derives its revenue exclusively
from the Handysize sector of the drybulk carrier market.
Handysize Drybulk Market
The Handysize drybulk carrier market is highly fragmented and cyclical.
Handysize drybulk carriers carry a wide variety of cargoes, including
agricultural products, sugar, salt, minerals, phosphates, bauxite and alumina,
forest products, petcoke, cement, steel products, scrap metal and pig iron, as
well as cargoes generally carried by larger gearless drybulk carriers, such as
coal, iron ore and grain. Demand for Handysize drybulk carriers is
geographically diverse and is affected by a number of factors including world
and regional economic and political conditions, developments in international
trade, changes in seaborne and other transportation patterns, weather patterns,
crop yields, armed conflicts, port congestion, canal closures and other
diversions in trade. These factors cause the demand for drybulk cargoes, and
consequently the demand for Handysize drybulk carriers, to fluctuate. In
addition, demand for Handysize drybulk carriers is affected by geo-political
trends. As political and economic barriers to international trade are removed,
international trade increases, thereby increasing demand for the seaborne
transportation of cargoes, such as the cargoes Handysize drybulk carriers
transport.
Handysize drybulk carriers service markets that are restricted by vessel
dimension and cannot be served by other types of drybulk carriers. For example,
the trade to and from the Great Lakes region of the United States and Canada is
restricted to vessels that have specified drafts and lengths and a maximum beam
of 23.2 meters. According to SSY, only 143 vessels built between 1980 and 1998
have a capacity of at least 25,000 dwt and meet these size parameters. As a
result, the Company believes these vessels are likely to earn premium charter
rates. Five of the Committed Vessels meet these parameters and, therefore, the
Company intends to be active in this sector of the Handysize drybulk carrier
market.
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<PAGE>
Handysize Drybulk Cargoes and Trade Patterns
Handysize drybulk carriers transport the greatest range of cargoes within
the drybulk sector and are not dependent on the supply and demand for any single
commodity. In addition, since Handysize drybulk carriers service the widest
geographic range of all bulk carriers, their utilization has been more stable
than larger drybulk carriers.
According to Drewry, a vast majority of minor bulk cargoes (other than
grain, coal and iron ore) carried in 1996 was transported by Handysize drybulk
carriers. Set forth below is a brief overview of the primary cargoes carried by
Handysize drybulk carriers and their trading routes.
Forest Products. Forest products include logs, timber, plywoods, newsprint,
sawnwoods, boards and panel products, paper, wood chips and wood pulp. According
to Drewry, forest product shipments totaled approximately 170 million tons in
1996, the majority of which were shipped in Handysize drybulk carriers.
Iron and Steel Products. Iron and steel products are cargoes derived from
the processing of iron ore, and include pipes, steel coils, plates and beams,
pig iron, steel slabs and wire rods. According to Drewry, approximately 110
million tons of iron and steel products were shipped in 1996, the majority of
which were transported by Handysize drybulk carriers.
Grain. Grain products include wheat, wheat flour, corn, barley and
soybeans. Although annual grain shipments are subject to political factors and
weather conditions, they have remained at approximately 185 million tons per
year over the past five years. Grain is primarily transported from the United
States, Canada, Europe, Australia and Argentina to the Far East, Latin America
and Africa. According to Drewry, Handysize drybulk carriers carried perhaps as
much as 40% of grain shipments, or about 85 million tons, in 1996.
Coal. The two categories comprising this segment are steam (or thermal)
coal, which is used by power utilities, and coking (or metallurgical) coal,
which is used by steelmakers. Coal shipments were estimated at approximately 430
million tons in 1996. Capesize and Panamax bulk carriers account for the
majority of these shipments. According to Drewry, Handysize drybulk carriers
transported perhaps as much as 20% of all coal shipments, or approximately 85
million tons, in 1996.
Historically, demand for Handysize drybulk carriers is geographically
diverse with no single region accounting for more than 25% of all trade.
According to Drewry, in 1995, the last year for which such data was available,
the principal geographic areas in which Handysize drybulk carriers trade
included North America, Europe and Asia.
Handysize Drybulk Carrier Freight Rates
Freight rates are strongly influenced by the supply of and demand for
shipping capacity. The demand for shipping capacity is primarily determined by
demand for the commodities carried and by the distance that those commodities
are to be moved by sea. Demand for commodities is affected by, among other
things, world and regional economic and political conditions (including
developments in international trade, fluctuations in industrial and agricultural
production and armed conflicts), environmental concerns, weather patterns, and
changes in seaborne and other transportation costs.
The Handysize drybulk carrier is the most versatile ship type within the
bulk carrier fleet. It is capable of carrying a wide range of cargoes and is
able to access most ports in the world. Handysize drybulk carriers are usually
fully employed in normal market conditions and rarely have downtime due to lack
of cargo, unlike the large Capesize carriers which may not be fully utilized.
This opportunity for continuous employment adds a degree of stability to
Handysize freight rates that is unavailable elsewhere in the drybulk carrier
market.
Freight rates for Handysize drybulk carriers have been relatively stable
over time when compared to freight rates for larger, gearless drybulk carriers.
Due in significant part to the recent economic crisis affecting certain Asian
economies, however, the freight rates for all drybulk carriers, including the
Handysize, have reached their lowest point in over a decade. Freight rates for
Handysize drybulk carriers on one-year time charters are generally determined by
supply and demand factors and vessel specifications, which include cargo gear,
vessel dimensions, cargo cubic capacity, and fuel consumption, among other
factors. According to SSY, over the past ten-year period, the average one-year
time charter rate for Handysize drybulk carriers in the 20,000 dwt to 30,000 dwt
range was $7,461 per day, with a high of $9,250 per day and a low of $5,550 per
day. Freight rates for middle aged Handysize drybulk carriers are
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<PAGE>
not significantly affected by age. According to SSY, as of June 1998 the average
one-year charter rate for a 15 year old 28,000 dwt Handysize drybulk carrier was
approximately 75% of that for a new Handysize drybulk carrier.
<TABLE>
<CAPTION>
20,000-30,000 dwt
Atlantic 12 Months Annual Average Time Charter Rates
- - - - - - ------------------------------------------------------------------------------------------------------------------------
1st
Quarter
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------- ----- ----- ----- ----- ----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum $8000 $8250 $8250 $8000 $6750 $8250 $8750 $10250 $8000 $7250 $5500
Average 7375 8042 6563 7271 6417 7771 8000 9292 6938 6958 5500
Minimum 6750 7500 5750 6000 6000 7000 7500 8250 5750 6250 5500
</TABLE>
Five-Year Average $7791.8
Ten-Year Average $7462.7
Source: SSY
Supply of Handysize Drybulk carriers
The supply of Handysize drybulk carriers, measured by the amount of
suitable tonnage available to carry cargo, is determined by the size of the
existing fleet in a particular market, the number of newbuildings on order, the
scrapping of older vessels and the number of vessels out of active service
(i.e., laid up, drydocked, awaiting repairs or otherwise not available for
hire). Supply primarily fluctuates in correlation with freight rates and, to a
lesser extent, by factors such as second hand values and operating expenses. As
freight rates decrease, the number of newbuildings tends to decrease and the
number of scrappings tends to increase.
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<PAGE>
<TABLE>
<CAPTION>
Handy Bulk Carrier Demolition
Activity vs. Deliveries
20,000-49,999 dwt ('000 dwt) Newbuildings Delivery Schedules
- - - - - - -------------------------------------------------------------------------------------------------------------------
Newbuilding Fleet --- Year Number of Newbuildings
Year Scrapping Deliveries Developments* Vesselsn Schedule-(in-dwt)
- - - - - - ------------------------------------------------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1988 (586) 670 90,280 *1998 149 5,502,205
1989 (274) 1,771 90,364
1990 (326) 1,768 91,861
1991 (421) 1,713 93,303
1992 (915) 1,259 94,595 Scrapping Projection Assumption **
-------------------------------------------------------
1993 (843) 892 94,939 YEAR SCRAPPING
-------------------------------------------------------
1994 (1,308) 3,274 94,988
1995 (511) 5,180 96,954 1.01.98 - 6.02.98 (2,853)
1996 (1,978) 5,890 101,623 6.02.98 - 12.31.98 (3,709)
1997 (2,361) 5,412 105,535 Pro Rated 1998 (6,562)
1998 (6,562) 5,502 104,475
</TABLE>
* Fleet Development based on reported 20,000-49,999 dwt vessel total fleet
dwt as of December 31, 1997--SSY.
** Scrapping projection based on annualizing confirmed Scrapping and Sold for
Scrap figures obtained for partial year (6.02.98).
Sources: 1988-1997 Newbuilding and Scrapped and Sold for Scrapping figures
from Drewry Shipping Consultants; 1998 Scrapped
and Sold for Scrapping figures provided by SSY; 1998 Newbuilding
Deliveries and 1999-2001 Scheduled Newbuildings provided by SSY.
According to SSY, as of December 31, 1997, there were 3,172 Handysize
drybulk carriers, with an aggregate capacity of 105.5 million dwt and an average
age of 14.9 years. Approximately 31% of these Handysize drybulk carriers were
over 20 years old and approximately 26% were 10 years old and under. As of March
1, 1998, 234 newbuildings were on order, with 149 scheduled to be delivered in
1998, 63 scheduled to be delivered in 1999 and 20 scheduled to be delivered in
2000. The newbuildings scheduled for delivery during 1998 comprise approximately
5% of the existing Handysize drybulk carrier fleet. During 1997, 74 Handysize
drybulk carriers were scrapped or otherwise removed, while the number of
scrappings and removals through June 1998 has already exceeded 95 vessels.
During the next decade, the number of vessels in this sector reaching their 30th
year of age will be a significant factor influencing the supply side dynamics of
the sector.
Acquisition Prices for Second Hand Handysize Drybulk Carriers
Acquisition prices for second hand Handysize drybulk carriers vary due to a
number of factors, including the cost of newbuildings, market supply and demand,
market perception, as well as the specification, size and age of the vessels.
The cost of newbuildings has remained relatively stable over the past decade,
while current second hand Handysize drybulk carrier costs are significantly
lower than the average costs for such vessels for the past decade. As a result,
the Company has an opportunity to acquire vessels at attractive prices. For
example, according to Shipping Intelligence and as of June 1998, the purchase
price of a 15-year old 25,000 dwt Handysize drybulk carrier was more than 31%
below that of the average price for the past ten years.
The following chart indicates the deviations from the ten-year average
acquisition price for second hand Handysize drybulk carriers over the past
decade.
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<PAGE>
Handysize Bulk Carrier Values
25,000 dwt. Acquisition Price Deviation
from 10 year Average 1998-1999
- - - - - - --------------------------------------------------------------------------------
(in $US mil)
Date 25,000 dwt % from avg. Average
---- ---------- ----------- -------
June 1988 -36.00% 5.9 3.8
September 1988 -41.06% 5.9 3.5
December 1988 -15.79% 5.9 5.0
March 1989 -12.43% 5.9 5.2
June 1989 -0.64% 5.9 5.9
September 1989 4.42% 5.9 6.2
December 1989 -4.01% 5.9 5.7
March 1990 1.05% 5.9 6.0
June 1990 -9.06% 5.9 5.4
September 1990 -15.79% 5.9 5.0
December 1990 -24.21% 5.9 4.5
March 1991 -27.58% 5.9 4.3
June 1991 -7.37% 5.9 5.5
September 1991 -17.48% 5.9 4.9
December 1991 -2.32% 5.9 5.8
March 1992 -14.11% 5.9 5.1
June 1992 -15.79% 5.9 5.0
September 1992 -12.43% 5.9 5.2
December 1992 -27.58% 5.9 4.3
March 1993 -9.06% 5.9 5.4
June 1993 1.05% 5.9 6.0
September 1993 2.73% 5.9 6.1
December 1993 -7.37% 5.9 5.5
March 1994 9.47% 5.9 6.5
June 1994 -4.01% 5.9 5.7
September 1994 14.52% 5.9 6.8
December 1994 2.73% 5.9 6.1
March 1995 16.20% 5.9 6.9
June 1995 29.68% 5.9 7.7
September 1995 27.99% 5.9 7.6
December 1995 31.36% 5.9 7.8
March 1996 27.99% 5.9 7.6
June 1996 36.41% 5.9 8.1
September 1996 17.89% 5.9 7.0
December 1996 -4.01% 5.9 5.7
March 1997 -10.74% 5.9 5.3
June 1997 7.78% 5.9 6.4
September 1997 7.78% 5.9 6.4
December 1997 2.73% 5.9 6.1
March 1998 -22.53% 5.9 4.6
April 1998 -15.79% 5.9 5.0
May 1998 -20.85% 5.9 4.7
June 1998 -30.95% 5.9 4.1
1988-1997 Ten Year Average..........................................5.9
Source: Shipping Intelligence
The current acquisition costs of second hand Handysize drybulk carriers
as compared with the cost of replacement tonnage makes the acquisition of second
hand Handysize drybulk carriers an attractive opportunity for the Company.
-50-
<PAGE>
BUSINESS
The Company is an international shipping company that currently owns
and operates a fleet of drybulk carriers, primarily Handysize drybulk carriers.
The Company has attracted strong industry partners and equity investors in order
to implement an expansion of its fleet through the acquisition of approximately
17 second hand Handysize drybulk carriers. On the Original Issue Date, the
Company owned five Existing Vessels and had executed vessel purchase agreements
to acquire the eleven Committed Vessels. As of the date of this Prospectus, the
Company has acquired eight of the Committed Vessels. The Company has obtained
period time charters for each of the Existing Vessels and Committed Vessels.
Approximately six Additional Vessels are expected to be acquired and placed on
period time charters within six months of the Original Issue Date.
The Company's senior management has a proven track record of
effectively managing shipping businesses, identifying shipping industry trends
and building fleets through vessel acquisitions. Vassilios Livanos, Chief
Executive Officer and a co-founder of the Company and its predecessor, has spent
his 25-year career in the drybulk sector of the shipping industry. Prior to
founding the Company, Mr. Livanos was president of Kedma in New York where he
expanded Kedma's fleet of four vessels through the acquisition of 20 vessels,
primarily Handysize drybulk carriers. Prior to Kedma, during his 13 years at
Seres Shipping, Inc., Mr. Livanos oversaw the acquisition and construction of
over 150 vessels as technical director. Theotokis Milas, Chief Operating Officer
and a co-founder of the Company and its predecessor, has spent 30 years in the
shipping industry. Prior to founding the Company, while Mr. Milas was at IMI, a
vehicle he co-founded to acquire vessels, IMI acquired a fleet of 16 vessels
having an aggregate capacity of 1.35 million dwt and generated substantial
returns for its investors. Nicholas Cotzias, Jr., Chief Financial Officer and a
co-founder of the Company and its predecessor, has over 15 years experience in
the shipping industry and also has significant experience in the expansion of
fleets. Prior to founding the Company, Mr. Cotzias was general manager and
director of Trade and Transport (UK) Ltd., part of a shipping venture which
controlled a fleet that expanded to over 35 vessels through the acquisition of
19 vessels. The Company's senior management believes the current downturn in the
drybulk carrier shipping cycle presents an excellent opportunity for the Company
to grow and enhance cash flow by purchasing vessels at attractive prices. The
acquisition costs of Handysize drybulk carriers are at their lowest levels in
ten years, in significant part due to the recent economic crisis in Asia.
The Company's strategy has been and will continue to be to generate
revenues under long-term contracts using period time charters for all of its
vessels in order to maximize vessel utilization and enhance stability of cash
flow and earnings. For example, over the last five years, all revenues relating
to the Existing Vessels were derived from a series of one-year time charter
contracts with either Cemex or Clipper, yielding an average utilization rate for
its vessels of over 98%. The current charters with these customers continue
through at least February 1999, at which time the Company will seek a further
renewal of the charters. The Company is chartering three of the Committed
Vessels to Clipper for a period of at least 12 months, four to FedNav for a
period of at least two and one half years and one to HSH for a period of at
least 12 months. In addition, two of the Committed Vessels are being acquired by
the Company subject to their existing charters with T&E and the Company has
obtained a commitment from FedNav to charter the remaining Committed Vessel. The
Company will acquire the Additional Vessels subject to either existing time
charters or newly negotiated time charters. In addition, major companies such as
Cargill, Continental Grain, Garnac Grain, Pillsbury, Kerr McGee, Marcona, Van
Ommeren, Armada and Ispat have current or previous charter relationships with
the Company or its management.
The Company has a proven ability to serve its charter customers in
niche trades which require specialized vessels or expertise and tend to generate
premium revenue rates as well as stable, long-term relationships. For example,
two of the Existing Vessels have traded forest products from the Amazon which
requires specially configured and geared vessels and navigational expertise. The
five Committed Vessels chartered to FedNav for initial terms of up to three and
one half years are ocean-going vessels that are capable of trading in the St.
Lawrence Seaway and Great Lakes region, as well as other technically demanding
regions. There are currently only 143 Handysize drybulk carriers that are at
least 25,000 dwt and under 18 years of age in the world capable of this trade.
As a result of its demonstrated expertise in specialized trades, the Company
typically is able to obtain long-term or recurring charters for its vessels and
believes it has generally achieved premium time charter rates.
The Company has engaged MMI, the sole shareholder of Millenium, to
provide certain commercial and technical management services to the Company at
current market rates. MMI has subcontracted with KYLCO to provide management
services. Messrs. Livanos, Milas and Cotzias are officers of KYLCO. Kylco Greece
and Kylco USA collectively employ 30 individuals. KYLCO currently manages or
sub-manages 18 vessels, five of which comprise the Existing Vessels, eight of
which comprise Committed Vessels and five of which are owned by third parties
and are not expected to be acquired by the Company. Recently, KYLCO and, through
KYLCO, the Existing Vessels received certification under IMO's ISM Code by
successfully completing audits conducted by Det Norske Veritas, a leading
classification society.
-51-
<PAGE>
Business Strategy
The Company's strategy is to expand its operations through the purchase
of high quality second hand drybulk carriers at attractive vessel prices and to
provide superior transportation services to its charterers. Key elements of this
strategy include:
Generating Stable Cash Flows Using Period Time Charters. Period time
charters provide for an agreed daily charter hire rate during the contract
period, which is generally 12 months. The Company believes that period time
charters provide more stable revenues and cash flows as well as better vessel
utilization than spot charters, which are generally contracts for single voyages
(typically of 15 to 30 days duration). In addition, the Company believes that
focusing on period time charters with a targeted group of charterers allows it
to provide superior customer-oriented service, thereby distinguishing itself
from other drybulk carrier operators, which in turn may allow the Company to
grow more steadily than other operators in this sector. The Company has period
time charters for all Existing Vessels and Committed Vessels and intends to
obtain time charters for the Additional Vessels. The Company has obtained
attractive period time charters for the Committed Vessels (of up to three and
one half years for certain of the Committed Vessels) despite current market
conditions.
Building the Company's Fleet by Taking Advantage of Attractive Prices.
The Company believes it now has the opportunity to purchase additional vessels
at virtually the lowest prices in the past decade and thereby generate superior
returns on its investments. The Company has inspected over 30 other vessels
during the past six months and continues to review additional opportunities. As
part of its long-term strategy to continue to grow through vessel acquisitions,
the Company plans to acquire vessels periodically at attractive prices. The
Company plans to actively manage its fleet by reinvesting earnings and proceeds
of periodic sales of the Mortgaged Vessels in order to grow and renew its fleet.
In addition, the Company will consider raising additional private and public
equity capital to support further fleet expansion.
Focusing on Handysize Drybulk Sector. The Company believes that
focusing on the Handysize drybulk sector of the shipping industry will generate
the following competitive advantages:
Marketing Advantages to Enhance Revenues. Focusing on the
Handysize drybulk sector of the shipping industry will enable the
Company to identify and respond to its market and customer needs. As a
customer-oriented service provider, the Company can use this market and
customer information to develop creative solutions for its clients,
including acquiring additional vessels or reconfiguring existing
vessels within its fleet and developing customized trade routes. For
example, in response to the needs and concerns of Cemex, the Company
developed a combined, vessel-specific trade for the carriage of cement
and petcoke, leading to recurring service contracts with this
charterer.
Operating Efficiencies to Reduce Costs. The Company is
generally able to achieve significant cost efficiencies as a result of
operating a fleet focused in one sector. These include more efficient
drydock service, better rates for insurance and spares and purchasing
efficiencies from suppliers. In addition, the Existing Vessels and
Committed Vessels include sister vessels that have similar design
characteristics, allowing the Company to benefit from operating,
maintenance and crew efficiencies.
Obtaining Better Returns with a Second Hand Fleet. The Company intends
to acquire and operate second hand vessels between 10 and 18 years of age,
consistent with management's operating experience. The Company believes the
values and charter rates for vessels in this age group enable it to obtain
superior returns on invested capital when compared to potential returns on
capital invested in newbuildings. According to SSY, as of June 1998, the
purchase price for a 15-year old 28,000 dwt Handysize drybulk carrier was
approximately 33% that of a newbuilding and the revenue obtained by a one-year
timecharter for such vessel was approximately 75% that for a newbuilding.
The Company's Fleet
Upon the acquisition of the Committed Vessels and the Additional
Vessels with the proceeds of the offering of the Existing Notes, the Company
will own and operate a fleet consisting of approximately 22 Handysize drybulk
carriers which operate worldwide. The following table indicates the age,
capacity, charter status and appraised value of the Existing Vessels and the
Committed Vessels.
-52-
<PAGE>
<TABLE>
<CAPTION>
Appraised
Year Capacity Chartered Daily Charter Value
Name of Vessel Built (dwt) Charterer Until Hire Rate (thousands)
- - - - - - -------------- ------- ------- --------- -------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Existing Vessels
Monica Marissa................ 1973 55,057(a) Cemex February 1996(b) $ 7,250 $ 3,625(d)
Clipper Harmony............... 1978 16,711 Clipper February 2000 7,500 5,175(d)
Clipper Golden Hind........... 1978 16,560 Clipper February 1999 7,500 4,375(d)
Clipper Pacific............... 1976 7,923 Clipper March 1999 4,300 1,675(d)
Clipper Atlantic.............. 1975 7,923 Clipper February 1999 4,300 1,625(d)
------------
Total Existing Vessels............................................................................................. 16,475
------------
Committed Vessels
Millenium Aleksander*......... 1988 52,650(a) T&E June 1999(c) 7,000 8,688(e)
Millenium Elmar*.............. 1987 52,650(a) T&E June 1999(c) 7,000 8,125(e)
Millenium Leader.............. 1984 37,489 HSH September 1999 6,800 8,100(f)
Millenium Hawk*............... 1984 28,791 FedNav March 2002 7,000 7,113(f)
Millenium Eagle............... 1983 28,788 FedNav March 2002 7,000 6,813(f)
Millenium Osprey.............. 1984 28,786 FedNav March 2002 7,000 7,113(f)
Millenium Falcon.............. 1981 27,048 FedNav March 2001 7,000 5,613(f)
Millenium Condor.............. 1981 27,036 FedNav March 2001 7,000 5,613(f)
Millenium Amethyst............ 1978 23,563 Clipper July 1999 5,275 3,000(e)
Millenium Yama................ 1979 23,538 Clipper July 1999 5,275 3,500(e)
Millenium Majestic............ 1979 17,152 Clipper August 1999 5,200 3,050(g)
Total Committed Vessels............................................................................................ $ 66,728
----------
Total Existing and Committed Vessels........................................................................... $ 83,203
==========
</TABLE>
* Not acquired as of the date of this Prospectus.
- - - - - - --------------------------
(a) Although the vessel capacity is greater than 49,999 dwt, it is considered
a Handy size drybulk carrier.
(b) The time charter for the Monica Marissa provides that the charterer
thereunder has the right to renew such charter at the specified rates set
forth therein.
(c) The Company may, at its option, cancel these charters at any time after
December 1998.
(d) Appraised value is based on the average of two appraisals, one performed
by a Designated Appraiser in February 1998 and the other performed by a
Designated Appraiser in June 1998. Appraised value gives effect to the
value of the time charter for the relevant vessel.
(e) Appraised value is based on the average of two appraisals completed in
February 1998, each performed by a Designated Appraiser. Appraised values
were determined on a charter-free basis.
(f) Appraised value is based on the average of two appraisals completed in
June 1998, one performed by SSY Shipbrokers and the other by Associated
Shipbrokers. Appraised value gives effect to the value of the time charter
for the relevant vessel.
(g) Appraised value is based on the average of two appraisals completed in
June 1998, each performed by a Designated Appraiser.
As of June 1998, the Existing Vessels and Committed Vessels had an
aggregate appraised value, giving effect to the values of their time charters,
of $82.9 million, based on the appraisal performed by a Designated Appraiser.
-53-
<PAGE>
Trade Routes and Representative Voyages
The Company's operations are worldwide. The following table indicates
representative trade routes and voyages of a portion of its fleet.
<TABLE>
<CAPTION>
Representative Voyages and Cargoes 1997
Vessels Load Port Discharge Ports Duration Cargo
- - - - - - ------- --------- --------------- -------- -----
<S> <C> <C> <C> <C>
Monica Marissa...............Spain U.S. Gulf Coast 30 days Bulk Cement
U.S. Gulf Coast Spain 28 days Petcoke
Clipper Harmony..............Canada Brazil 40 days Forest Products
Brazil U.S. Gulf Coast 22 days Steel Products
Clipper Golden Hind........ U.S. Gulf Coast Italy 31 days Craft Paper
Germany U.S. Gulf Coast 28 days Steel Products
Clipper Pacific..............U.S. East Coast Caribbean 20 days Forest Products
Brazil U.S. East Coast 38 days Forest Products
Clipper Atlantic.............U.S. East Coast Caribbean 20 days Forest Products
Brazil U.S. East Coast 38 days Forest Products
Millenium Aleksander...... U.S. Gulf Coast Japan 36 days Grain
Millenium Elmar..............Estonia Saudi Arabia 32 days Grain
Millenium Amethyst......... Caribbean Japan 53 days Bulk Bauxite
Millenium Yama...............Philippines Japan 20 days Bulk Dolomite
</TABLE>
Operations
Chartering Strategy
The chartering process begins when a need is identified to transport a
cargo or cargoes from one port to another. The charterer typically contacts a
broker or group of brokers to determine the availability of suitable vessels to
transport the specified cargo. The charterer then chooses from an array of
available companies with vessels able to satisfy its needs and seeks to
negotiate the most favorable economic terms for its transportation requirements.
Typically, the agreed terms are based on standard industry charterparties
prepared to streamline the negotiation and documentation processes. In certain
cases, it is necessary to work closely with charterers to devise tailored
solutions to their transportation needs.
Charters may be arranged on a spot basis for the immediate hiring of a
vessel, usually for a single voyage, or through longer term arrangements, such
as contracts of affreightment and time or bareboat charters. Contracts of
affreightment are agreements to transport a specified type of cargo on a
specified route on a regular basis. Contracts of affreightment function as a
long-term series of spot charters, except that the vessel owner is not required
to use a specific vessel to transport the cargo, but instead may use any vessel
that can satisfy the requirement. Companies holding contracts of affreightment
may take other owners' vessels on charter to fulfill their commitments.
A period time charter is a contract for the hire of a specific vessel
for a certain period of time, with the vessel owner being responsible for
providing the crew and paying operating costs, while the charterer is
responsible for fuel and other voyage costs. This form of charter
eliminates variable costs and the risks for the owner of the vessel.
The Company has a global chartering strategy, concentrating on period
time charters of at least 12 months duration and targeting both its existing
customer base and new charterers. The Company believes that time charters
provide stable revenues and cash flows and better vessel utilization than spot
charters. The depth of experience of the Company's commercial staff enables it
to access a worldwide network of shipping brokers for the utilization of the
Mortgaged Vessels. All the Existing Vessels are currently under time charters
through at least February 1999.
Millenium Elmar and the Millenium Aleksander will be acquired subject
to a period time charter at a rate of $7,000 per day until June 1999 with T&E.
The Millenium Yama and the Millenium Amethyst are currently chartered to Clipper
at a rate of $5,275 per day until July 1999 and under an optional renewal period
of six months at $6,000 per day. The Millenium Majestic is currently chartered
to Clipper at a rate of $5,200 per day until August 1999.
-54-
<PAGE>
FedNav, a major international shipping company that provides
transportation services worldwide, is chartering four of the Committed Vessels
and is committed to charter another Committed Vessel at a rate of $7,000 per
day, three for a period of three and one half years and two for a period of two
and one half years. Due to the size and dimensions of these vessels, they are
capable for trade in the Great Lakes region of the United States and Canada. The
Company understands that FedNav is using these Committed Vessels for trade in
the Great Lakes region. Pursuant to the terms of each of the FedNav charters,
during the winter season while the Great Lakes are frozen, FedNav has the option
to redeliver these Committed Vessels to the Company, but is obligated to
reaccept them during the spring opening of the Great Lakes shipping season.
HSH, a diversified hotel and shipping conglomerate with approximately
3,000 employees and over $730.0 million in assets and shareholder funds as of
March 31, 1997, is chartering one Committed Vessel at a rate of $6,800 per day
for a period of 12 months commencing August 29, 1998, with a renewal option at a
rate of $6,800 per day for an additional 12-month period. HSH is headquartered
in Singapore and has offices in Hong Kong, throughout Australia and South East
Asia.
Vessel Management
Each of the Mortgaged Vessels owned by the Company currently receives,
and each of the Mortgaged Vessels to be acquired by the Company will receive,
management services from MMI. Under the New Management Agreement, MMI acts as
the fleet's technical manager and also performs all commercial management
functions, including arranging chartering, advising the Company on the purchase
and sale of vessels and advising on obtaining insurance. As remuneration for its
services, MMI receives a fixed daily management fee (payable monthly in advance)
of $350 to $600 per day ($350 per day during fiscal 1998), depending on the type
and size of vessel managed and receives a commission of 1.25% on all time
charter revenue, 1.75% of spot charter revenue, 2.0% of insurances placed by
each vessel managed and 1.0% on the gross sale or purchase price of vessels
which the Company purchases or sells. The Company believes that the terms of the
New Management Agreement are at least as favorable as can be obtained from
independent third party managers. See "Certain Transactions--New Management
Agreement."
MMI subcontracts certain technical and commercial management services
to KYLCO. Kylco Greece and Kylco USA collectively employ approximately 30
individuals. Kylco Greece has offices in Piraeus and Kylco USA has offices in
New York, providing full service and support to the Mortgaged Vessels from two
locations, each located in strategic shipping epicenters. The Company believes
that these locations allow KYLCO to maximize the efficient technical and
commercial aspects of ship management. Kylco Greece and Kylco USA coordinate
their activities to eliminate duplicative effort and conflicting priorities so
as to provide the most complete, efficient, cost effective management services
to their respective clients. The Company believes that KYLCO's multi-disciplined
and coordinated structure allows it to provide the most effective management
services for the differing sizes and types of vessels operated by the Company
and KYLCO's other clients.
MMI and KYLCO provide commercial management services by coordinating
with various third party brokers. MMI solicits, researches, evaluates and
proposes charters for the Mortgaged Vessels and, pursuant to the Company's
direction, also negotiates the terms and conditions for the sale and purchase of
the Mortgaged Vessels, through recognized shipbrokers worldwide. Finally, at the
Company's instruction, MMI obtains insurance for the Mortgaged Vessels, working
through recognized third party brokers worldwide.
MMI and KYLCO also provide comprehensive technical management services
to each of the Mortgaged Vessels. MMI's services include: obtaining qualified
officers and crews; managing day-to-day vessel operations and relationships with
charterers; purchasing stores, supplies and new equipment; performing general
vessel maintenance, reconditioning and repair, including commissioning and
supervising shipyards, subcontractors, or drydock facilities required for such
work; ensuring regulatory and classification society compliance; performing
operational budgeting, evaluating and arranging financing for the vessels and
performing accounting, treasury and finance functions (including cash
disbursements and collections). MMI provides these services on a collective
basis to the Company's fleet as well as certain vessels that are unaffiliated
with the Company, thereby allowing the Company to benefit from certain economies
of scale.
Each member of KYLCO's staff that interacts with vessels is provided
with home and portable linkages to the vessels' communication and data system,
so that ship management services can be provided around the clock, seven days a
week. All the Mortgaged Vessels will also be linked by electronic communication
to KYLCO to allow immediate response to vessel management operations.
-55-
<PAGE>
Crewing
The Company employs mainly Russian officers and crews on its vessels,
all of whom must be fully licensed and certified in accordance with
international regulatory requirements and shipping conventions. The Company
believes that all officers are fully qualified
for their respective disciplines.
As part of its ongoing commitment to maintain a high quality fleet and
efficient operations, the Company places great emphasis on attracting qualified
crew members and on regular training. Prior to and during employment, the
Company requires all shipboard personnel to undergo training courses both
in-house and at recognized national training centers. All these courses are
selected with a view toward enabling shipboard personnel to maintain a high
level of skill within their respective areas, with an emphasis on safety and
keeping up to date with the latest technical and professional developments.
The Company's seaboard personnel are responsible for carrying out
routine maintenance aboard the vessels while at sea. In addition to the regular
crew, the Company's vessels routinely have extra repair teams aboard to conduct
repairs at sea. These repair teams are comprised of workers formerly employed by
shipyards in Rumania and Russia. The Company believes that repairs conducted at
sea cost the Company less than that would otherwise be incurred if such repairs
were conducted by a shipyard and that they reduce the number of repairs required
during the regular maintenance cycle conducted by KYLCO's technical department.
Competition
Seaborne transportation services are provided by independently owned
fleets, proprietary fleets and state-owned fleets. Competition for charters can
be intense and depends on freight rates offered, location, size, age, condition
and acceptability of a vessel and its operator to the charterer. Although the
Company believes that the markets in which the Company competes are highly
fragmented and that no single competitor has a dominant position, the Company is
aware that certain competitors may be able to devote greater financial and other
resources to their activities, which may result in a competitive threat to the
Company.
Classification Society and ISM Certification and Other Safety Requirements
Every commercial vessel's hull and machinery must be "classed" by a
classification society authorized by its country of registry. The classification
society verifies that a vessel is constructed, maintained and equipped in
accordance with the rules of such classification society and that the vessel
complies with flag state regulations and with international conventions,
including the Safety of Life at Sea Convention ("SOLAS") and the regulations
promulgated by the IMO. Insurance underwriters make it a condition of insurance
coverage for the vessel to be "classed" and the failure of a vessel to be
"classed" may render such a vessel uninsurable. Insurance underwriters may also
require that vessels comply with standards more restrictive than those of the
classification society. All the Existing Vessels and Committed Vessels are
currently "in class," with the Lloyds Register, the American Bureau of Shipping,
Germanischer Lloyd or Russian Society or Det Norske Veritas, each of which is a
member of the International Association of Classification Societies.
A vessel must be inspected by a surveyor of the classification society
at least every year, every two and one-half years ("Intermediate Survey") and
every four or five years ("Special Survey"). If any defects are found, the
classification society will issue a "recommendation" which requires the ship
owner to remedy the defect within a prescribed time limit. The Intermediate
Survey includes an underwater examination of the vessel's submerged hull and
machinery. The Special Survey includes a mandatory drydocking. In connection
with a Special Survey, the vessel is examined extensively, including an
inspection to determine the thickness of the steel plates in various parts of
the vessel. If the vessel experiences excessive wear and tear, substantial
expenditures may become necessary for steel renewals and other repairs to pass a
Special Survey. Although the useful life of a vessel may be extended by capital
improvements and upgradings, the costs necessary to meet classification society
and other safety and regulatory requirements generally increase significantly as
a vessel becomes older. All the Existing Vessels and Committed Vessels are on a
five-year Special Survey cycle. In addition to the drydocking conducted as part
of the Special Survey, each vessel must be drydocked at some time between
special surveys.
-56-
<PAGE>
The following table sets forth upcoming periodic survey and drydocking
dates for the Existing Vessels and the Committed Vessels:
<TABLE>
<CAPTION>
Intermediate Special
Vessel Drydocking Survey Survey Classification Society
- - - - - - ------ ---------- ------ ------ ----------------------
<S> <C> <C> <C> <C>
Monica Marissa August 2000 March 2003 March 2000 Lloyds Register
Clipper Harmony September 1998 June 2000 September 1998 Lloyds Register
Clipper Golden Hind February 2000 March 2000 March 2002 Germanischer Lloyd
Clipper Pacific February 2000 April 1999 April 2001 Lloyds Register
Clipper Atlantic May 1999 June 2002 June 1999 Germanischer Lloyd
Millenium Aleksander March 2001 September 2000 September 2003 Det Norske Veritas
Millenium Elmar August 1999 October 1999 July 2001 Russian Society
Millenium Leader October 1999 December 2002 December 1999 Lloyds Register
Millenium Hawk December 1998 December 2001 December 1998 Det Norske Veritas
Millenium Eagle January 2001 January 2001 May 2003 Det Norske Veritas
Millenium Osprey December 2000 December 2001 December 1998 Det Norske Veritas
Millenium Falcon November 2000 September 2000 June 2003 Lloyds Register
Millenium Condor November 1998 May 1998 May 2001 Lloyds Register
Millenium Amethyst February 2001 July 2001 July 2003 American Bureau of Shipping
Millenium Yama December 2000 December 2001 June 2003 American Bureau of Shipping
Millenium Majestic March 1999 March 2001 March 1999 American Bureau of Shipping
</TABLE>
The Company's policy is to include the costs of intermediate and
special surveys and drydocking in operating expenses. The purpose of the ISM
certification is to provide an international standard for the safe management
and operation of ships and for pollution
prevention.
The ISM Code required that shipowners and vessel managers developed, no later
than July 1, 1998, an extensive Safety Management System ("SMS") that includes,
among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating vessels safely and
discussing procedures for dealing with emergencies. Specifically, a SMS requires
that conditions, activities and tasks, both ashore and on board, affecting
safety and environmental protection be planned, organized, executed and checked
in accordance with legislative and Company requirements. Noncompliance with the
ISM Code may subject a shipowner or bareboat charterer to increased liability
and may lead to decreases in available insurance coverage for affected vessels.
KYLCO has secured ISM certification and, through KYLCO, the Company has obtained
ISM certification for all of the Existing Vessels, having successfully completed
audits conducted by Det Norske Veritas, a leading classification society. The
Company has six months from the date of the acquisition of a vessel within which
it must obtain ISM Certification for such vessel. As of the date of this
Prospectus, the Company has obtained ISM Certification for seven of the
Committed Vessels.
Insurance
The business of the Company is affected by a number of risks, including
mechanical failure, personal injury, vessel and cargo loss or damage, business
interruption due to political conditions in foreign countries, hostilities,
labor strikes, adverse weather conditions and catastrophic marine disaster,
including environmental accidents and collisions. The Mortgaged Vessels are
insured against these risks with the following forms of insurance for such
vessel.
Hull and Machinery Insurance. The Company maintains marine hull and
machinery insurance, which insures against the risk of damage and the total or
constructive total loss of an insured vessel and against damage to third parties
directly caused by an insured vessel. Constructive total loss occurs when the
vessel is damaged to the extent that the repair costs exceed the insured value
of the vessel. The Company also maintains war risk insurance, which insures
against the risk of damage and the total or constructive total loss of an
insured vessel directly caused by certain warlike situations such as military
use of weapons or terrorist activities. Coverage for areas designated from time
to time as war zones may be excluded or additional premiums may be required in
respect of vessels operating in such zones. The Company maintains coverage for
at least the full value of each insured vessel and updates this insurance at
least annually. The Company maintains civil and war risk hull and machinery
insurance on all of its vessels. This insurance has been placed in the French,
Italian and Norwegian markets, and is subject to deductibles consistent with
industry practice.
P&I Insurance. The Company maintains P&I insurance coverage for its
shipping activities, which includes the legal liability and other related
expenses of injury to or death of crew members and third parties, loss or damage
to cargo, claims arising from collisions with other vessels, damage to other
third party property, pollution liability and salvage, towing and other related
costs. The Company's P&I
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insurance coverage is arranged through P&I mutual insurance clubs. As a member
of a club, the Company may be required to pay additional premiums at the end of
a year in which claims made on the club were particularly large. The Company's
total premium is based on the Company's own claims record, the total claims
record of the members of the club and the aggregate claims record of all clubs
which are members of the international association of P&I clubs.
In line with industry practice, coverage for damages arising out of
hazardous materials discharges is limited to $500 million per vessel per
incident. For trading in United States Waters, the Company arranges additional
insurance coverage, satisfactory to USCG regulatory approval, for liability
arising from oil pollution.
Adequacy of Insurance. The Company believes that its current insurance
coverage provides adequate protection against the accident-related risks
involved in the conduct of its business and that the Company maintains
appropriate levels of environmental damage and pollution insurance coverage
consistent with industry practice. The Company's insurance policies are subject
to commercially reasonable deductibles.
Regulation
The Company's operations are materially affected by regulation in the
form of international conventions and national, state and local laws and
regulations in force in the jurisdictions in which the Mortgaged Vessels
operate, as well as in the country or countries of their registration. Because
such conventions, laws and regulations are subject to revision, the Company
cannot predict the ultimate cost of compliance or the impact thereof on the
resale price or useful life of its vessels. The Company is required to carry
certain permits, licenses and certificates with respect to its operations.
Subject to the discussion below and to the fact that the kinds of permits,
licenses and certificates required for the operation of the Mortgaged Vessels
will depend upon a number of factors, the Company believes that the Company has
been and will be able to obtain all permits, licenses and certificates material
to the conduct of its operations. The Company believes that the heightened
environmental and quality concerns of insurance underwriters, regulators and
charterers will impose greater inspection and safety requirements on all
vessels. The Mortgaged Vessels are subject to both scheduled and unscheduled
inspections by a variety of governmental and private interests, each of which
may have a different perspective or impose different standards. These interests
include the local port state authority (USCG or equivalent), classification
society, flag state administration (country of registry) and charterers.
Environmental Regulation--International
The IMO is an agency of the United Nations whose purpose is to develop
international regulations and practices affecting shipping and international
trade, and to encourage the adoption of standards of safety and navigation. All
IMO agreements must be ratified by the IMO's individual government constituents.
The International Convention on Civil Liability for Oil Pollution Damage, 1969,
as amended (the "CCL"), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1979, as amended, are the principal
international laws adopted by most jurisdictions for imposing strict liability
on a vessel's registered owner for pollution damage caused on the territorial
waters of a contracting state by the discharge of persistent oil. The liability
of the vessel owner is subject to certain complete defenses. The United States
is not a party to the CCL. Approximately one-quarter of the countries that have
ratified the CCL have increased the liability limits through a 1992 Protocol to
the CCL that has recently entered into force. As of September 1, 1998, for
vessels of between 5,000 and 140,000 gross tons, the liability limits in the
countries that have ratified this Protocol to the CCL are approximately $3.9
million plus approximately $546 per gross ton above 5,000 gross tons, with an
approximate maximum of $78.0 million. The exact amount of liability is tied to a
unit of account which varies according to a basket of currencies. The exchange
rate in effect on September 1, 1998 for the dollar equivalent of this unit of
account was approximately 1.3. The right to limit liability is forfeited under
the CCL where the spill is caused by the owner's intentional or reckless
conduct. Vessels carrying cargo in bulk trading to contracting states must
establish evidence of insurance covering the limited liability of the owner. In
jurisdictions where the CCL has not been adopted, various legislative schemes or
common law govern, and liability is imposed either on the basis of fault or in a
manner similar to the CCL.
The ISM Code and implementing regulations require shipowners and
bareboat charterers to have developed, no later than July 1, 1998, an extensive
"Safety Management System" that includes policy statements and instruction
manuals that set forth standard operating, maintenance and communication
protocol. Noncompliance with the ISM Code may subject shipowners and bareboat
charterers to increased liability, may lead to decreases in available insurance
coverage for affected vessels, and may result in the denial of access to, or
detention in, certain ports. The Company, through KYLCO, has obtained ISM
certification for the Existing Vessels and seven of the Committed Vessels and
will be required to obtain ISM certification for the remaining Committed Vessels
and the Additional Vessels within six months of the date of their respective
acquisitions.
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The IMO recently adopted new survivability and structural requirements
for drybulk carriers aimed at preventing the sinking of any such vessel if one
cargo hold floods. The new requirements will apply to existing ships carrying
heavy cargoes, including iron ore, steel, bauxite and cement and future vessels
carrying lighter cargo. On the Existing Vessels and certain of the Committed
Vessels, the transverse watertight bulkhead below the foremost cargo hold, and
the bottom of that hold, would have to withstand flooding of the fore hold. All
drybulk vessels of 150 meters or more built after July 1, 1999 would have to
withstand flooding of any one hold, even if they only haul lighter cargo, such
as grain. The IMO has called on member states to enact these new requirements
and begin enforcing them on July 1, 1999. The Company believes that it will be
able to comply with these requirements without incurring material costs.
The IMO continues to review and introduce new regulations on a regular
basis. It is impossible to predict what additional regulations, if any, may be
passed by the IMO, whether those regulations will be adopted by member
countries, and what effect, if any, such regulations
might have on the Company's operations.
Environmental Regulation--OPA 90
OPA 90 applies to all owners, operators and bareboat charterers of
vessels ("Responsible Parties") that trade within the United States or its
territories or possessions or that operate in U.S. Waters, which include the
United States territorial seas and the 200-nautical mile
exclusive economic zone of the United States.
Under OPA 90, Responsible Parties are strictly liable, on a joint and
several basis, for all oil spill containment, removal costs and damages arising
from actual or threatened discharges of oil from their vessels (unless the
discharge results solely from the act or omission of a third party, an act of
God or an act of war). Damages include (i) natural resources damages and the
costs of assessment thereof, (ii) real and personal property damages, (iii) net
loss of taxes, royalties, rent fees and other lost government revenues, (iv)
lost profits or impairment of earning capacity due to property or natural
resources damage, (v) net cost of public services necessitated by a spill
response, such as protection from fire, safety or health hazards and (vi) loss
of subsistence use of natural resources. OPA 90 limits the strict liability of
Responsible Parties to the greater of $1,200 per gross ton or $10 million per
tanker, but such limitation may not be available to the Responsible Parties in
certain circumstances. CERCLA contains a similar strict liability regime for the
release of hazardous substances, which the Company's vessels may carry.
Liability under CERCLA is limited to the greater of $300 per gross ton or $5
million. These limits of liability under CERCLA and OPA 90 do not apply if the
incident is proximately caused by violation of applicable United States federal
safety, construction or operating regulations, or by the Responsible Party's
gross negligence or willful misconduct, or if the Responsible Party failed or
refused to report the incident or to cooperate and assist in connection with oil
removal activities. OPA 90 specifically permits individual states to impose
their own liability regimes with regard to oil pollution incidents occurring
within their waters, and most states that border on a navigable waterway have
enacted legislation providing for unlimited liability for the discharge of
pollutants. Moreover, OPA 90 and CERCLA preserve the right to recover damages
under existing law, including maritime tort law.
OPA 90 increased the financial requirements of the Federal Water
Pollution Control Act for vessels operating in United States waters and requires
owners and operators of vessels to establish and maintain with the USCG evidence
of financial responsibility sufficient to meet the limit of their potential
strict liability under OPA 90 and CERCLA. Bulk carriers must demonstrate
financial responsibility in the amount of the greater of $500,000 or $600 per
gross ton. Such financial responsibility, evidenced by the USCG's issuance of a
Certificate of Financial Responsibility ("COFR"), may be demonstrated by a
guarantee in the form of acceptable insurance, surety bond, self-insurance or
other means approved by the USCG. Claimants may bring suit directly against an
insurer, surety or other party that furnishes that guarantee. An insurer, surety
or other party that is sued directly is limited to asserting the following
defenses: (i) the defense that the incident was caused by the willful misconduct
of the Responsible Party; (ii) the defenses available to the Responsible Party
under OPA 90 or CERCLA; (iii) the defense that the claim exceeds the amount of
the guarantee; (iv) the defense that the claim exceeds the property amount of
the guarantee based on the gross tonnage of the vessel; and (v) the defense that
the claim has not been made under either OPA 90 or CERCLA. The Company has
demonstrated its financial responsibility by purchasing insurance from special
purpose insurers approved by the USCG. The Company believes that its vessels
that call within U.S. Waters comply with these USCG requirements.
OPA 90 requires owners or operators of vessels operating in U.S. Waters
to file vessel response plans with the USCG and with certain states detailing
the steps to be taken to address an oil spill and to operate their vessels in
compliance with their USCG-approved plans. Such response plans must, among other
things, (i) address a "worst case" scenario and identify and ensure, through
contract or other approved means, the availability of necessary private response
resources to respond to a "worst case discharge," (ii) describe crew training
and drills and (iii) identify a qualified individual with full authority to
implement removal actions. The Company has vessel response plans approved by the
USCG for vessels in its fleet operating in United States Waters and the
Company's vessels are operated in substantial compliance with such plans.
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Legal Proceedings
The Company is involved in certain routine litigation incidental to its
business. The Company is not a party to, nor are any of its properties the
subject of any legal proceedings which, individually or in the aggregate, will
have a material adverse effect on its business or financial condition.
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OFFICERS AND DIRECTORS
The following individuals are the senior officers and directors of
Millenium (ages as of September 1, 1998):
Vassilios M. Livanos 51 Chairman, Chief Executive Officer and Director
Theotokis S. Milas 55 Chief Operating Officer
Nicholas A. Cotzias, Jr. 38 Chief Financial Officer and Director
Emanuel Kyprios 55 Vice President, Projects
Michael A. Dritz 60 Director
Harald H. Ludwig 43 Director
Robert W. Nilsen 48 Director
Connor O'Brien 37 Director
Tom Stage Petersen 40 Director
Vassilios M. Livanos has been involved in the shipping industry for
over 25 years. In 1993 he was one of the founding partners of Kylco Greece. From
1985 to 1993, Mr. Livanos was president of Kedma Ltd., a New York-based
shipowning company which was founded in 1985. As President of Kedma, Mr. Livanos
directed the growth of Kedma's fleet from four vessels to over 20 vessels. From
1972 to 1985, Mr. Livanos worked for Seres Shipping Inc., in New York and Tokyo,
as Director of Engineering responsible for the technical management of a fleet
of over 100 vessels. Mr. Livanos spent four years in Japan, where he supervised
the construction of over 20 vessels of various types. During his tenure at Seres
Shipping Inc., Mr. Livanos was a principal shipowner of two vessels from 1981
and a principal in a drybulk chartering operation from 1983. Mr. Livanos
graduated from the Massachusetts Institute of Technology in 1971, with a B.A.
and M.S. in Naval Architecture and Marine Engineering, and an M.S. in Shipping
and Shipbuilding Management.
Theotokis S. Milas has been involved in the shipping industry for over
30 years. In 1993 Mr. Milas was one of the founding members of Kylco Greece. In
1984 he was a founding partner of IMI, a New York based shipowning company with
15 vessels having an aggregate tonnage of 1.25 million dwt. Prior to 1984, Mr.
Milas held various management positions with other shipping companies based in
the United States. Also during that time, Mr. Milas was appointed and acted as a
qualified surveyor for the American Bureau of Shipping and the NKK, the Japanese
Classification society. He graduated from City University of New York with a
B.S. degree in Mechanical Engineering in 1966, and from Massachusetts Institute
of Technology in 1971 with M.S. degrees in Naval Architecture and Marine
Engineering, as well as in Shipping and Shipbuilding Management. Mr. Milas was
elected a member of the Society of Maritime Arbitrators in 1981.
Nicholas A. Cotzias, Jr. has been involved in the shipping industry for
over 15 years. In 1993, he was one of the founding partners of Kylco Greece.
From 1988 to 1993, Mr. Cotzias served as the General Manager and Director of
Trade and Transport (UK) Ltd. in London, part of Brokerage & Management Group, a
United States connected shipping venture which controlled, at the time, in
excess of 40 vessels including drybulk carriers, tankers and offshore supply and
support vessels, trading primarily in the North Seas. Mr. Cotzias handled a
number of transactions in the sale and purchase sector, and period charter
employments, for and on behalf of the owners of vessels, and was responsible for
successfully preparing, analyzing and negotiating investment proposals in
assisting the group implement various programs and maximizing returns by meeting
targets. From 1984 to 1988, Mr. Cotzias worked at Cotzias Shipping of Greece, an
international family owned concern established in 1892, as sale and purchase
manager. Mr. Cotzias graduated from Boston University in 1982 with a B.A. and an
M.A. degree in International Economics.
Emanuel Kyprios has been involved in the shipping industry for over 25
years. In 1993 Mr. Kyprios was one of the founding members of Kylco Greece. In
1985, Mr. Kyprios founded the OSI Group which specializes in merchant banking
for the shipping industry, and has provided financial services to some of the
leading shipping groups and financial shipping institutions in the world. From
1970 to 1984, Mr. Kyprios was an executive at Bankers Trust Company and
Manufacturers Hanover Trust Company and Vice President and Group Head of
Shipping and Transportation at Marine Midland Bank. Mr. Kyprios graduated from
The Wharton School of Finance and Commerce in 1968 with an MBA degree.
Michael Dritz is the Chairman of Dritz Enterprises LLC, a New York
based investment firm which also provides consulting services for the financial
industry since 1996. Mr. Dritz also serves on the board of directors of Compass
Aerospace Corporation, a supplier of aerospace parts. Mr. Dritz was previously a
Managing Director for Merrill Lynch & Co. and Chairman of its Smith Brothers
International Advisory Division. Until 1996, following the acquisition by
Merrill Lynch & Co. of Smith New Court PLC, Mr. Dritz was the President and
Chief Executive Officer of Smith New Court, Inc. and an Executive Director of
Smith New Court PLC from 1985 to 1995. Mr. Dritz is a graduate of Syracuse
University.
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Harald H. Ludwig is a co-founder and President of Macluan Capital
Corporation, a private investment company based in Vancouver, British Columbia.
Under Mr. Ludwig's leadership, Macluan Capital Corporation has invested in over
20 companies since 1986. Mr. Ludwig serves on the board of directors of Compass
Aerospace Corporation, a supplier of aerospace parts. Mr. Ludwig graduated from
Simon Fraser University and received a law degree from Osgoode Hall Law School.
Robert W. Nilsen has been involved in shipping over 20 years. Since
1990, he has been a Director and Vice President at Clipper Americas, Inc. Prior
to that he worked at various other shipping and chartering companies in the
United States. Mr. Nilsen graduated from the United States Merchant Marine
Academy in 1972 with a B.S. degree and a third mate's license. He also did
post-graduate studies at the
Stevens Institute.
Connor O'Brien is a co-founder and Managing Director of Stanton Capital
Corporation, a private equity investment firm based in New York. Prior to
forming Stanton Capital in 1995, he worked in the Investment Banking Group at
Merrill Lynch & Co., following four years in the Mergers & Acquisitions and
Natural Resources Groups at Lehman Brothers Inc. and two years at a major New
York bank. Mr. O'Brien sits on the board of directors of several privately-held
companies, including ESCO and Siderperu, the former government-owned national
steel company in Peru. Mr. O'Brien received an M.B.A. from the Tuck School at
Dartmouth College.
Tom Stage Petersen is the Managing Director of ESCO and has 23 years
experience in the shipping industry. Prior to joining ESCO in the beginning of
1998, Mr. Petersen worked for Norasia Lines Ltd. for ten years, where he held
various management positions in Asia, the Middle East and Europe. Prior to that
Mr. Petersen worked at Maersk Line/A.P. Moller for thirteen years.
Compensation of Officers and Directors
The directors of the Company are each entitled to receive approximately
$10,000 plus expenses from the Company annually. Neither the Company nor any of
its subsidiaries have set aside or reserved funds for pension, retirement or
similar benefits for directors and officers. Certain officers and directors of
the Company will also be officers and directors of and compensated by MMI, Kylco
Greece and/or Kylco USA.
Employee Incentive Plan
The Company anticipates that MMI will establish a restricted stock or
similar employee benefit plan for MMI employees who are not officers. In
addition, Millenium expects to adopt a cash incentive plan to reward non-officer
employees only in the event that Millenium's annual EBITDA exceeds $20.0
million.
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PRINCIPAL STOCKHOLDERS
As of July 24, 1998, MMI was the sole shareholder of Millenium. The
following table sets forth certain information regarding the approximate
beneficial ownership as of the date of this Prospectus of MMI's voting common
stock with respect to (i) each person or entity who is expected to be the
beneficial owner of more than 10% of the outstanding shares of Class A Common
Stock ("Class A Shares") and the outstanding shares of Class B Common Stock
("Class B Shares") and (ii) certain officers and directors of MMI.
<TABLE>
<CAPTION>
Number Percentage of Number of Percentage of
of Class A Total Class A Class B(a) Total Class B
Name Shares Shares % Shares Shares %
- - - - - - ---- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Vassilios M. Livanos 73 4.3 130 16.3
Theotokis S. Milas 123 7.2 130 16.3
Nicholas A. Cotzias, Jr. 73 4.3 130(b) 16.3
Emanuel Kyprios 57 3.4 43 5.4
Millenium Advisors 133 7.8 367(b) 45.9
Millenium Investment 610 35.9 -- --
ESCO(c) 400 23.5 -- --
Clipper(c) 219 12.9 -- --
Connor O'Brien(d) 743 43.7 367(b) 45.9
Tom Stage Petersen(e) 400 23.5 -- --
</TABLE>
(a) Holders of Class B Shares do not vote for directors of MMI but
otherwise vote together with the holders of Class A Shares on all other
matters. Upon a dividend or a liquidation of MMI the holder of each
Class B Share would receive a portion of the proceeds to be received by
the holder of each Class A Share. The Class B Shares will be identical
to the Class A Shares when certain credit obligations of MMI have been
satisfied.
(b) Assumes exercise of warrants to purchase 50 shares of Class B Shares
for $.01.
(c) Shares are expected to be held by subsidiaries of such entities.
(d) Mr. O'Brien is the managing member of Millenium Advisors and the sole
director of Millenium Investment and as such may be deemed to be a
beneficial owner of the shares owned by such entities. Mr. O'Brien
disclaims beneficial ownership of such shares in excess of his
proportionate share of MMI.
(e) Mr. Petersen is the Managing Director of ESCO and as such may be
deemed to be a beneficial owner of the shares owned by ESCO. Mr.
Petersen disclaims such beneficial ownership.
CERTAIN TRANSACTIONS
New Management Agreement
Each of the Mortgaged Vessels owned by the Company currently receives,
and each of the Mortgaged Vessels to be acquired by the Company will receive,
technical and commercial management services from MMI pursuant to the New
Management Agreement. The New Management Agreement is substantially similar to
the Kylco Management Agreements, which agreements expired on the Original Issue
Date.
Under the New Management Agreement, MMI acts as the fleet's technical manager
and performs all commercial management functions, including arranging
chartering, advising the Company on the purchase and sale of vessels and
advising on obtaining insurance. As remuneration for its services, MMI receives
a fixed daily management fee (payable monthly in advance) ranging from $350 to
$600 per day depending on the type and size of vessel managed. In addition, any
visit to a vessel by a superintendent of MMI to evaluate or supervise any
repairs, drydocking or other activities entitles MMI to expenses incurred and,
from visits in excess of five days per annum per vessel, its expenses incurred
and an amount equal to $550 for each additional day. As additional remuneration
for its services, MMI receives commissions of (i) 1.25% on all gross revenue
earned by each vessel managed in respect of time charters, (ii) 1.75% on all
gross revenue earned by each vessel managed in respect of charters arranged on
the spot market, (iii) 1.0% on the gross sale or purchase price of a vessel and
(iv) 2.0% of insurance premiums for insurance placed, in each case as adjusted
to reflect fluctuations in market rates and practices. The Company believes that
the terms of the New Management Agreement with MMI are at least as favorable as
can be obtained from independent third party managers. MMI subcontracts certain
technical and commercial management services to Kylco Greece and Kylco USA. MMI
performs similar services under similar compensation arrangements for vessels
that are unaffiliated with the Company, including the five vessels currently
managed by Kylco Greece that are not being contributed to the Company. See
"Business--Operations."
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Advisory Agreement
Millenium has entered into an Advisory Agreement with Millenium
Advisors, L.L.C. ("Advisors"), an affiliate of Stanton Capital, as exclusive
financial and strategic advisor, pursuant to which Advisors provides financial
and investment management services, merchant and investment banking services and
corporate finance services to Millenium upon the terms and conditions set forth
therein. As compensation for such ongoing services, Millenium will pay Advisors,
on a quarterly basis in advance, payable on the first business day of each
calendar quarter, (i) through the later to occur between (x) the first full
eight quarters following consummation of the offering of the Existing Notes and
(y) an initial public offering of MMI, $300,000 per year (or $75,000 per
quarter), appropriately pro rated for partial periods, and (ii) thereafter,
$150,000 per year (or $37,500 per quarter), appropriately pro rated for partial
periods. The Advisory Agreement will terminate at such time as Millenium
Investment (together with its designees and affiliates) ceases to own at least
8% of the outstanding common stock of MMI. Millenium agreed to indemnify
Advisors against liabilities, costs, charges and expenses relating to Advisors's
performance of its duties, other than such of the foregoing resulting from
Advisors's gross negligence or willful misconduct. On the Original Issue Date,
Stanton Capital, an affiliate of Advisors was paid success-based compensation
equal to 0.5% of the value of the Transactions plus $150,000 for its pre-Issue
Date expenses incurred in connection with the Transactions.
New Equity Contribution
On or shortly following the Original Issue Date, MMI received: (i) the
contribution of 100% of the issued and outstanding shares of the Subsidiary
Guarantors that own the Existing Vessels, for a value of $4.0 million, (ii) a
portion of the contribution relating to the Committed Vessels equal to $4.0
million with respect to vessels from Aleksander Aberg Maritime Company Ltd. and
Elmar Kivistik Maritime Company Ltd., subsidiaries of ESCO, $1.9 million with
respect to Committed Vessels from Yama Shipping Company Ltd., Majestic Shipping
Co. Ltd. and Amethyst Shipping Co. S.A. Ltd. and $7.0 million with respect to
the Millenium Leader, the Millenium Hawk, the Millenium Eagle, the Millenium
Osprey, the Millenium Falcon and the Millenium Condor, (iii) cash from Millenium
Investment, Inc. equal to $6.1 million and (iv) cash from Management and its
affiliates equal to $1.0 million. MMI has contributed the foregoing vessel and
cash equity to Millenium. MMI is the sole shareholder of Millenium (the "Equity
Contribution").
Accounting for the Transactions
Under United States generally accepted accounting principles, the
assets and liabilities contributed by the principal stockholder will be recorded
at historical cost and the assets and liabilities contributed by the other
stockholders will be recorded at fair value. It is expected that Millenium
Investment, which contributed cash, will be the principal stockholder insofar as
it owns the largest number of shares of MMI.
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DESCRIPTION OF THE EXCHANGE NOTES
General
The Exchange Notes will be issued, and the Existing Notes were issued,
under an Indenture, dated as of July 15, 1998 (the "Indenture"), among
Millenium, the Subsidiary Guarantors and The First National Bank of Maryland, as
trustee (the "Trustee").
The following is a summary of certain provisions of the Indenture, the
Security Agreements, the Existing Notes and the Exchange Notes, a copy of which
Indenture, Security Agreements and the form of Exchange Note is available upon
request to Millenium at the address set forth under "Available Information." The
statements under this section relating to the Existing Notes, the Exchange
Notes, the Indenture and Security Agreements are summaries of the material
terms, but do not purport to be a complete description, of the Indenture, the
Existing Notes, the Exchange Notes or Security Agreements and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended, as well as the Security Agreements.
Capitalized terms used herein and not otherwise defined have the meanings set
forth in the section "--Certain Definitions."
The Exchange Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
No service charge shall be made for any registration of transfer or exchange of
Notes, but Millenium may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Exchange
The Exchange Notes have been registered under the Securities Act and,
accordingly, will not be subject to certain restrictions on transfer applicable
to the Existing Notes. Except (i) as provided in the previous sentence and (ii)
that the Existing Notes are entitled to the benefit of the Registration Rights
Agreement, the Exchange Notes have terms and conditions identical in all
material respects to those of the Existing Notes. Accordingly, unless
specifically stated to the contrary, the following description of the Exchange
Notes applies equally to the Existing Notes and the Exchange Notes, and
following the exchanges, the Exchange Notes and the untendered Existing Notes,
if any, will be treated as one series for purposes of the Indenture.
Terms of the Exchange Notes
The Exchange Notes are senior secured obligations of Millenium, limited
to $100.0 million aggregate principal amount at maturity, and will mature on
July 15, 2005. Payment of the principal of, premium, if any, and interest on the
Exchange Notes will be irrevocably and unconditionally guaranteed by each of the
Subsidiary Guarantors. Cash interest will accrue and be paid at 12% per annum
from July 24, 1998 or from the most recent date to which interest has been paid
or provided for, payable semiannually to Holders of record at the close of
business on the January 1 or July 1 immediately preceding the interest payment
date on January 15 and July 15 of each year, commencing January 15, 1999.
Millenium will pay interest on overdue principal at 1.0% per annum in excess of
such rate, and it will pay interest on overdue installments of interest at such
higher rate to the extent lawful.
Escrow of Proceeds; Special Mandatory Redemption
Millenium has entered into an escrow agreement (the "Escrow Agreement")
with The First National Bank of Maryland as Escrow Agent (the "Escrow Agent")
pursuant to which Millenium deposited on the Original Issue Date with the Escrow
Agent an amount, in cash or Treasury Securities (as defined in the Escrow
Agreement) equal to approximately $85.2 million, which represented amounts to be
used to purchase the Committed Vessels and the Additional Vessels and pay
related deposits, fees and expenses and make related upgrades and repairs (such
cash and Treasury Securities, together with the interest, dividends and
distributions thereof, "Escrowed Proceeds"). As of the date of this Prospectus,
approximately $45.1 million remains on deposit in the Escrow Account.
Escrowed Proceeds have been and will continue to be released to
Millenium from time to time by the Escrow Agent upon the satisfaction of the
conditions set forth in the Indenture and the Escrow Agreement, including the
receipt of a Release Certificate (as defined below), the recording of Mortgages
and other collateral documents (if applicable), the delivery of appropriate
legal opinions and the absence of any Default or Event of Default under the
Indenture at the time of such release.
A "Release Certificate" shall be a written certificate of Millenium,
signed by two of its Officers, which:
(1) shall state that it is a Release Certificate;
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(2) shall state that to the knowledge of the signers thereof,
no Default or Event of Default under the Indenture shall have occurred
and be continuing as of the date of such Release Certificate;
(3) shall specify the dollar amount which Millenium is thereby
seeking to have released from the Escrow Account (the "Requested
Amount"); and
(4) shall set forth the circumstances that justify the
release of the Requested Amount as described in one or more of the
following:
(a)(i) Millenium or a Restricted Subsidiary has
executed a sale and purchase contract (an "Acquisition
Contract") to acquire an Additional Vessel or Additional
Vessels, (ii) such Acquisition Contract has been signed by the
applicable seller, is in full force and effect as of the date
of the Release Certificate and the signers of the Release
Certificate are not aware of any default that could reasonably
lead to the termination of such Acquisition Contract
thereunder by Millenium, such Restricted Subsidiary or the
applicable seller, (iii) the vessel(s) to be acquired pursuant
to such Acquisition Contract conform(s) in all material
respects with the description in the Prospectus of the types
of Vessels which are to be acquired with Escrowed Proceeds,
(iv) the Requested Amount does not exceed the amount required
to pay a deposit to the applicable seller, or to pay other
pre-delivery expenses, or the cost of appraisals for such
Additional Vessel or Additional Vessels, in each case called
for by the Acquisition Contract, and (v) after giving effect
to the release of the Requested Amount and the application
thereof in accordance with such Release Certificate, the Loan
to Value Ratio would not exceed 0.85 to 1.00 as of the date of
the execution of the Acquisition Contract;
(b)(i) Millenium or a Restricted Subsidiary proposes
to consummate simultaneously with the release of the Requested
Amount, the acquisition of one or more Committed Vessels or
Additional Vessels, pursuant to an Acquisition Contract, (ii)
the vessel(s) to be acquired pursuant to such Acquisition
Contract is either a Committed Vessel or conform(s) in all
material respects with the description in the Prospectus of
the types of Vessels which are to be acquired with Escrowed
Proceeds and in the case of a Committed Vessel, the conditions
in the related Acquisition Contract have been satisfied; (iii)
the Requested Amount does not exceed the sum of the balance of
the consideration payable to the applicable seller pursuant to
the Acquisition Contract plus the related transaction costs
(including the cost of appraisals for such Committed Vessel(s)
or Additional Vessel(s)) incurred by Millenium or the
Restricted Subsidiary, including the reasonable fees and
expenses of counsel and the costs of the registration of title
and the recording of the mortgage with respect thereto, and
(iv) after giving effect to the release of the Requested
Amount and the application thereof in accordance with such
Release Certificate, the Loan to Value Ratio would not exceed
0.85 to 1.00 as of the date of the execution of the
Acquisition Contract; provided, however, that no more than
$53.8 million may be released to effect the purchase of the
Committed Vessels.
(c)(i) in connection with, or within six months
after, the acquisition of a Committed Vessel or an Additional
Vessel by Millenium or a Restricted Subsidiary with proceeds
of the sale of the Existing Notes, including Escrowed
Proceeds, Millenium or the Restricted Subsidiary has
undertaken or is undertaking necessary maintenance, repair
(including structural modifications) or drydocking expenses,
including survey expenses, relating to such Committed Vessel
or such Additional Vessel, and (ii) the Requested Amount does
not exceed the amount of such expenses;
Except for the purposes described in paragraphs (a)-(c) of the
definition of "Release Certificate" above, and except to pay the Special
Mandatory Redemption Price (as defined below) in connection with a Special
Mandatory Redemption (as defined below and except as otherwise provided in the
next paragraph), Millenium will not be entitled to withdraw Escrowed Proceeds
for any purpose.
To the extent that, after the close of business on July 31, 1999, the
amount of cash and the fair market value (as determined by the Board of
Directors in good faith) of securities on deposit in escrow with the Escrow
Agent exceeds $5.0 million, Millenium will be obligated to use all such
remaining Escrowed Proceeds to redeem (the "Special Mandatory Redemption") as
much principal amount of Exchange Notes, or untendered Existing Notes, if any,
as can be redeemed with such Escrowed Proceeds at a redemption price equal to
the sum of 101% of the Accreted Value of such Exchange Notes, or untendered
Existing Notes, if any, and the accrued and unpaid interest thereon to the
Special Mandatory Redemption Date (as defined below) (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date) (such redemption price, the "Special Mandatory
Redemption Price"). For purposes hereof, "Special Mandatory Redemption Date"
means August 31, 1999. To the extent that, after the close of business on July
31, 1999, the amount of cash and the fair market value (as determined by the
Board of Directors in good faith) of securities on deposit in escrow with the
Escrow Agent is equal to or less than $5.0 million, such cash and securities
will be promptly released to Millenium, free of any lien of the Indenture, the
Escrow Agreement or the Security Agreements, and the Escrow Agreement will be
terminated.
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If the Escrow Agent receives a notice of Special Mandatory Redemption
pursuant to the terms of the Indenture and the Exchange Notes, the Escrow Agent
will liquidate all Escrowed Proceeds then held by it not later than the third
Business Day prior to the Special Mandatory Redemption Date and release all the
Escrowed Proceeds to the Paying Agent for the Exchange Notes for payment to
Holders on the Special Mandatory Redemption Date and, to the extent of any
excess, thereafter for payment to Millenium free of any lien of the Indenture or
the Escrow Agreement, whereupon the Escrow Agreement or the Security Agreements
will terminate.
Certain provisions relating to Millenium's obligations to redeem
Exchange Notes and the untendered Existing Notes, if any, in a Special Mandatory
Redemption may not be waived or modified without the written consent of the
Holders of all the Notes.
Additional Amounts
All payments made on behalf of Millenium or the Subsidiary Guarantors
under or with respect to the Exchange Notes or the Subsidiary Guarantees, as
applicable, must be made free and clear of and without withholding or deduction
for, or on account of, any present or future tax, duty, levy, impost, assessment
or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf of the Cayman
Islands, Liberia, Cyprus or any jurisdiction in which Millenium or any of the
Subsidiary Guarantors is incorporated or resident for tax purposes or by any
authority or agency therein or thereof having power to tax (or the jurisdiction
of incorporation of any successor of Millenium or the Subsidiary Guarantors)
(hereinafter "Taxes"), unless Millenium or the Subsidiary Guarantors, as
applicable, are required to withhold or deduct Taxes by law or by the
interpretation or administration thereof by the relevant government authority or
agency. If Millenium or the Subsidiary Guarantors (or any successor of either),
as applicable, are so required to withhold or deduct any amount for or on
account of Taxes from any payment made under or with respect to the Exchange
Notes or the Subsidiary Guarantees, as applicable, Millenium or the Subsidiary
Guarantors (or any successor of either), as applicable, will be required to pay
such additional amounts ("Additional Amounts") as may be necessary so that the
net amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received if such Taxes had not been withheld or deducted; provided, however,
that no Additional Amounts will be payable with respect to payments made to a
Holder (an "Excluded Holder") in respect of a beneficial owner
(i) which is subject to such Taxes by reason of its being
connected with the Cayman Islands, Liberia, Cyprus or any jurisdiction
in which Millenium or any of the Subsidiary Guarantors is incorporated
or resident for tax purposes other than by a connection relating to or
otherwise arising from the mere holding of Exchange Notes or the
receipt of payments thereunder (or under the related Subsidiary
Guarantee),
(ii) which presents any Exchange Note for payment of principal
more than 60 days after the later of (x) the date on which payment
first became due and (y) if the full amount payable has not been
received by the Trustee on or prior to such due date, the date on
which, the full amount payable having been so received, notice to that
effect shall have been given to the Holders by the Trustee, except to
the extent that the Holder would have been entitled to such Additional
Amounts on presenting such Exchange Note for payment on any day within
such 60-day period, including the last day of the applicable 60-day
period,
(iii) which failed duly and timely to comply with a
reasonable, timely request of Millenium to provide information,
documents or other evidence concerning the Holder's nationality,
residence, entitlement to treaty benefits, identity or connection with
the Cayman Islands, Liberia, Cyprus or any jurisdiction in which
Millenium or any of the Subsidiary Guarantors is incorporated or
resident for tax purposes or any political subdivision or authority
thereof, if and to the extent that due and timely compliance with such
request would have reduced or eliminated any Taxes as to which
Additional Amounts would have otherwise been payable to such Holder but
for this clause (iii),
(iv) on account of any estate, inheritance, gift, sale,
transfer, personal property or other similar Tax,
(v) which is a fiduciary, a partnership or not the beneficial
owner of any payment on an Exchange Note or the Subsidiary Guarantees,
if and to the extent that any beneficiary or settlor of such fiduciary,
any partner in such partnership or the beneficial
owner of such payment (as the case may be) would not have been entitled
to receive Additional Amounts with respect to such payment if such
beneficiary, settlor, partner or beneficial owner had been the Holder
of such Exchange Note or
(vi) any combination of the foregoing numbered clauses of this
proviso.
Millenium or the Subsidiary Guarantors (or any successor of either), as
applicable, will also make such withholding or deduction and remit the full
amount deducted or withheld to the relevant authority as and when required in
accordance with applicable law. Millenium or the Subsidiary Guarantors (or any
successor of either), as applicable, will furnish to the Trustee, within 30 days
after the date the payment of any
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Taxes is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by Millenium or the Subsidiary Guarantors (or any
successor of either), as applicable, in such form as provided in the normal
course by the taxing authority imposing such Taxes and in such form as is
legally sufficient to obtain foreign tax credits for United States Federal
income tax purposes. The Trustee shall make such evidence available to the
Holders upon request. Millenium or the Subsidiary Guarantors (or any successor
of either), as applicable, will upon written request of each Holder (other than
an Excluded Holder), reimburse each such Holder for the amount of (i) any Taxes
so levied or imposed and paid by such Holder as a result of payments made under
or with respect to the Exchange Notes or the Subsidiary Guarantees, as
applicable, and (ii) any Taxes imposed with respect to any such reimbursement
under the immediately preceding clause (i), but excluding any such Taxes on such
Holder's net income, so that the net amount received by such Holder after such
reimbursement will not be less than the net amount the Holder would have
received if Taxes (other than such Taxes on such Holder's net income) on such
reimbursement had not been imposed.
Whenever in the Indenture there is mentioned, in any context, (a) the
payment of principal, (b) purchase prices in connection with a purchase of
Exchange Notes, (c) interest or (d) any other amount payable on or with respect
to any of the Exchange Notes, or any payment pursuant to the Subsidiary
Guarantees, such mention shall be deemed to include mention of the payment of
Additional Amounts provided for in this section to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
The foregoing obligations shall survive any termination, defeasance or
discharge of the Indenture.
Millenium or the Subsidiary Guarantors (or any successor of either)
will pay any present or future stamp, court or documentary taxes or any other
excise or property taxes, charges or similar levies that arise in any
jurisdiction from the execution, delivery, enforcement or registration of the
Exchange Notes or the Subsidiary Guarantees or any other document or instrument
in relation thereto, or the receipt of any payments with respect to the Exchange
Notes or the Subsidiary Guarantees, excluding such taxes, charges or similar
levies imposed by any jurisdiction outside of the Cayman Islands, Liberia,
Cyprus or any jurisdiction in which Millenium or any of the Subsidiary
Guarantors is incorporated or resident for tax purposes, the jurisdiction of
incorporation of any successor of Millenium or any jurisdiction in which a
paying agent is located, and has agreed to indemnify the Holders for any such
taxes paid by such Holders.
For a discussion of the exemption from withholding taxes of the Cayman
Islands, Liberia, Cyprus or any jurisdiction in which Millenium or any of the
Subsidiary Guarantors is incorporated or resident for tax purposes applicable to
payments under or with respect to the Exchange Notes, see "Certain Foreign Tax
Considerations."
Redemptions
Redemption upon Sale or Loss of a Mortgaged Vessel. If either
(1) a Mortgaged Vessel or the Capital Stock of a Subsidiary
Guarantor is sold in compliance with the terms of the Indenture (the
Mortgaged Vessel so sold or owned by the Subsidiary Guarantor whose
Capital Stock is so sold being the "Sold Mortgaged Vessel"), or
(2) an Event of Loss occurs at any time with respect to a
Mortgaged Vessel (the Mortgaged Vessel suffering such Event of Loss
being the "Lost Mortgaged Vessel"),
then within 60 days after the date title of the Mortgaged Vessel passes to the
buyer (such date being the "Sale Date"), in the case of a sale, or within 60
days after the date such Event of Loss was deemed to have occurred (the "Loss
Date"), Millenium shall give written notice (such date of notice or such 60th
day, whichever is earlier, being the "Notification Date") to the Trustee whether
it elects to redeem Exchange Notes in connection with such sale or Event of
Loss; provided, however, that if a Default shall have occurred and be continuing
on the Notification Date, Millenium will be required to redeem Exchange Notes in
accordance with the provisions of the Indenture described in the following
paragraphs.
Upon the receipt by Millenium of the Net Available Cash attributable to
a Sold Mortgaged Vessel or of the Net Event of Loss Proceeds attributable to a
Lost Mortgaged Vessel, such amounts shall be deposited with the Trustee in
accordance with the Indenture and shall constitute Collateral pending
application as hereinafter described, but shall not constitute Escrowed
Proceeds.
If Millenium elects to (or is required to) redeem Exchange Notes, the
redemption date will occur not later than 60 days after the date (the "Proceeds
Receipt Date") of the receipt of such Net Available Cash or Net Event of Loss
Proceeds, as the case may be.
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In such event, Millenium shall apply Net Available Cash or Net Event of
Loss Proceeds, as the case may be, in an amount (the "Redemption Amount") at
least equal to the Vessel Percentage applicable to the Sold Mortgaged Vessel as
of the Sale Date or the Lost Mortgaged Vessel as of the Loss Date, as the case
may be, multiplied by the Accreted Value of the Exchange Notes and untendered
Existing Notes, if any, outstanding on the Sale Date or the Loss Date, as the
case may be (provided, however, that if a Default shall have occurred and be
continuing on the Notification Date, the amount required to be applied by
Millenium to redeem Exchange Notes and untendered Existing Notes, if any, shall
equal the greater of such Redemption Amount and such Net Available Cash or Net
Event of Loss Proceeds, as the case may be; provided further, however, that if
the Loan To Value Ratio (calculated to include in the numerator thereof the then
outstanding amount of Indebtedness under any working capital facility to the
extent such Indebtedness is secured by a prior Lien on the Mortgaged Vessels)
would be less than 0.8 to 1.0 after giving effect to the disposition of such
Sold Mortgaged Vessel and the redemption of Exchange Notes and untendered
Existing Notes, if any, using the lesser of the Redemption Amount and the Net
Available Cash, then the amount required to be applied by Millenium to redeem
Exchange Notes and untendered Existing Notes, if any, shall equal the lesser of
the Redemption Amount and such Net Available Cash), to redeem as much principal
amount of Exchange Notes and untendered Existing Notes, if any, as can be
redeemed at the Sale Redemption Price (as defined below) or the Loss Redemption
Price (as defined below), as the case may be.
The "Sale Redemption Price" means, per $1,000 principal amount at
maturity of Exchange Note, the sum of (a) the greater of (i) 100% of the
Accreted Value and (ii)(x) if such redemption date is on or after July 15, 2003,
the redemption price then applicable as described under "--Other Redemption," or
(y) if such redemption date is prior to July 15, 2003, the sum of (1) the
remaining scheduled payments of interest on such Exchange Note through July 15,
2003 and (2) the redemption price of such Exchange Note on July 15, 2003 as
described under "--Other Redemption," in each case as discounted to their
present values to the redemption date on a semiannual basis (assuming a 360-day
year consisting of 12 30-day months) at a rate equal to the Treasury Rate plus
50 basis points, and (b) accrued and unpaid interest on such Exchange Note to
the redemption date.
The "Loss Redemption Price" means, per $1,000 principal amount at
maturity of Exchange Note, the sum of (a) 100% of the Accreted Value and (b)
accrued and unpaid interest on such Exchange Note to the redemption date.
On the redemption date attributable to a Sold Mortgaged Vessel or a
Lost Mortgaged Vessel, the Trustee will apply the applicable Net Available Cash
or the applicable Net Event of Loss Proceeds (together with any funds Millenium
delivers to the Trustee to the extent necessary to pay the Sale Redemption Price
or the Loss Redemption Price for the Exchange Notes to be redeemed) to pay the
Sale Redemption Price or the Loss Redemption Price to the Holders of Exchange
Notes and untendered Existing Notes, if any, being redeemed. To the extent that
after the Sale Redemption Price or the Loss Redemption Price has been paid with
respect to all Exchange Notes and untendered Existing Notes, if any, to be
redeemed in respect of such Sold Mortgaged Vessel or Lost Mortgaged Vessel, as
the case may be, any related Net Available Cash or Net Event of Loss Proceeds
remains on deposit with the Trustee, such Net Available Cash or Net Event of
Loss Proceeds will be released to Millenium, free of the Lien of the Indenture
and the Mortgages, and such funds may be used by Millenium for any purpose not
otherwise prohibited by the Indenture, including the making of Restricted
Payments.
Redemption Upon Public Equity Offering. At any time and from time to
time prior to July 15, 2001, Millenium may redeem in the aggregate up to 35% of
the principal amount at maturity of the Exchange Notes and untendered Existing
Notes, if any, with the proceeds of one or more Public Equity Offerings
following which there exists a Public Market, at a redemption price (expressed
as a percentage of Accreted Value) of 112% plus accrued and unpaid interest to
the redemption date (subject to the right of Holders on the relevant record date
to receive interest due on the relevant interest payment date); provided,
however, that at least $65.0 million aggregate principal amount at maturity of
the Exchange Notes and untendered Existing Notes, if any, must remain
outstanding and be held, directly or indirectly, by Persons other than Millenium
and its Affiliates, after each such redemption and that any such redemption
occurs within 60 days following the closing of any such Public Equity Offering.
Other Redemption. On or after July 15, 2003, the Exchange Notes will be
redeemable, at Millenium's option, in whole or in part, at any time or from time
to time, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of Accreted Value), plus accrued and
unpaid interest to the redemption date (subject to the right of Holders on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on July 15 of the years
set forth below:
Period Redemption Price
------ ----------------
2003 106%
2004 100
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Selection of Exchange Notes for Redemption. In the case of any partial
redemption, selection of the Exchange Notes for redemption will be made by the
Trustee on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate, although no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part. If any
Exchange Note is to be redeemed in part only, the notice of redemption relating
to such Note shall state the portion of the principal amount at maturity thereof
to be redeemed. A new Exchange Note in principal amount at maturity equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note.
Redemption for Changes in Withholding Taxes. The Exchange Notes may be
redeemed, at the option of Millenium, at any time as a whole but not in part, on
not less than 30 nor more than 60 days' written notice to each Holder, at 100%
of the Accreted Value thereof, plus accrued and unpaid interest to the date of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date), in the
event Millenium or the Subsidiary Guarantors, as the case may be, has become or
would become obligated for reasons outside of its control, and after taking
reasonable measures to avoid such obligation, to pay, on the next date on which
any amount would be payable with respect to the Exchange Notes, any Additional
Amounts on the Exchange Notes or Subsidiary Guarantees pursuant to the terms and
conditions thereof as a result of a change in or an amendment to the laws
(including any regulations or rulings promulgated thereunder) of the Cayman
Islands, Liberia or Cyprus (or any relevant jurisdiction, political subdivision
or taxing authority thereof or therein), or any change in or amendment to any
official position regarding the application or interpretation of such laws,
regulations or rulings (including a holding by a court of competent
jurisdiction), which change or amendment is announced or becomes effective on or
after the date of the Original Closing Date; provided, however, that (a) no such
notice of redemption shall be given earlier than 60 days prior to the earliest
date on which Millenium or the Subsidiary Guarantors, as the case may be, would
be obligated to pay such Additional Amounts if a payment in respect of the
Exchange Notes or the Subsidiary Guaranty were then due, and (b) at the time any
such redemption notice is given, such obligation to pay Additional Amounts must
remain in effect. Prior to any redemption of the Exchange Notes, Millenium shall
deliver to the Trustee or any paying agent an Officer's Certificate stating that
Millenium is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right to effect such
redemption have occurred.
Tender of Qualified Substitute Vessel
In the event that Millenium elects, with respect to a Sold Mortgaged
Vessel or a Lost Mortgaged Vessel, not to redeem Exchange Notes as described
under "--Redemptions--Redemption Upon Sale or Loss of Mortgaged Vessel," then
within seven months after the Proceeds Receipt Date, Millenium or a Restricted
Subsidiary will be required to tender to the Trustee (or to the Collateral
Agent) as part of the Collateral a Qualified Substitute Vessel; provided,
however, that if Net Available Cash attributable to a Sold Mortgaged Vessel or
Net Event of Loss Proceeds attributable to a Lost Mortgaged Vessel is less than
$5 million, Millenium or such Restricted Subsidiary may defer the tender of a
Qualified Substitute Vessel until the date (the "Extended Tender Date") that is
three months after the aggregate of all such amounts not applied to tender
Qualified Substitute Vessels equals or exceeds $5 million, at which time
Millenium or such Restricted Subsidiary shall use the unused Net Available Cash
or Net Event of Loss Proceeds to tender a Qualified Substitute Vessel on or
before the Extended Tender Date; and provided, further, that if, at any time
prior to the date on which Millenium or a Restricted Subsidiary enters into a
binding agreement with respect to the purchase of a Qualified Substitute Vessel,
a Default shall occur, Millenium shall thereupon instead become obligated to
redeem Exchange Notes in accordance with the provisions described under
"--Redemptions--Redemption Upon Sale or Loss of Mortgaged Vessel." Net Available
Cash or Net Event of Loss Proceeds, as the case may be, attributable to such
Sold Mortgaged Vessel or such Lost Mortgaged Vessel, as the case may be, will be
made available to Millenium or any Restricted Subsidiary pursuant to the terms,
and subject to the conditions, of the Indenture and the Security Agreements to
make any deposits in respect of, or to consummate the purchase of, the Qualified
Substitute Vessel, and to pay related fees and expenses and make upgrades and
repairs thereon. To the extent that any such Net Available Cash or Net Event of
Loss Proceeds remain on deposit with the Trustee after the tender of the
Qualified Substitute Vessel, such funds will be released to Millenium, free of
the Lien of the Indenture and the Security Agreements, and such funds may be
used by Millenium for any purpose not otherwise prohibited by the Indenture,
including the making of Restricted Payments.
On the date on which a Qualified Substitute Vessel is tendered to the
Trustee (or to the Collateral Agent) as part of the Collateral (a "Vessel Tender
Date") following a sale of or an Event of Loss with respect to, a Mortgaged
Vessel, Millenium shall deliver to the Trustee (or to the Collateral Agent) , or
shall cause the owner of such Qualified Substitute Vessel, which shall be a
Wholly Owned Subsidiary of Millenium (the "Tendered Vessel Owner"), to deliver
to the Trustee (or to the Collateral Agent) , as the case may be, the documents
and certificates required by the Indenture, including, among other things:
(i) a Guarantee Agreement substantially in the form required
by the Indenture;
(ii) a Mortgage (or a preliminary registration thereof,
pending delivery of a copy of the Mortgage) with respect to such
Qualified Substitute Vessel dated the Vessel Tender Date in favor of
the Trustee (or the Collateral Agent) and substantially in the
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form required by the Indenture (or the Collateral Agency Agreement)
(such Mortgage having been duly received for recording in the
appropriate registry office), together with appropriate legal opinions
with respect to such Mortgage; and
(iii) written appraisals by two independent Appraisers of the
value of such Qualified Substitute Vessel as of a date within
60 days prior to the Vessel Tender Date.
Excess Proceeds Offers
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below), totals at least $10.0 million, Millenium must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders pursuant to and subject to the conditions contained
in the Indenture on a pro rata basis an aggregate Accreted Value of Exchange
Notes and untendered Existing Notes, if any, equal to the Excess Proceeds
available on such first day of the month, at a purchase price equal to 100% of
their Accreted Value, plus, in each case, accrued and unpaid interest (if any)
to the date of purchase (an "Excess Proceeds Payment").
Millenium shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to an
Excess Proceeds Offer. To the extent that the provisions of any securities laws
or regulations conflict with provisions in the Indenture governing Excess
Proceeds Offers, Millenium shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
hereunder by virtue thereof.
Guarantees
Millenium's obligations for payment of the principal of, and premium,
if any, and interest on the Exchange Notes, the Subsidiary Guarantors'
obligations for payment of all sums of money payable under the Security
Agreements and performance of all other provisions contained in the Indenture
and the Security Agreements (collectively, the "Obligations") will be
irrevocably and unconditionally guaranteed on a senior secured basis by each of
the Subsidiary Guarantors. Each Subsidiary Guarantee will be limited in amount
to an amount not to exceed the maximum amount that can be guaranteed by the
applicable Subsidiary Guarantor without rendering the applicable Subsidiary
Guarantee voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
If a Subsidiary Guarantee were to be rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guarantee could be reduced to zero. See "Risk Factors--Certain
Creditors' Rights; Fraudulent Conveyance Statutes."
Upon the sale or other disposition of all the Capital Stock of a
Subsidiary Guarantor or the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor (in each case other than to Millenium or an
Affiliate of Millenium) in compliance with the terms of the Indenture and the
Security Agreements, such Subsidiary Guarantor will be released and relieved
from all its obligations under its
Subsidiary Guarantee.
Collateral
In order to secure the Obligations, Millenium will pledge in favor of
the Trustee all the issued and outstanding Capital Stock of each Subsidiary
Guarantor owned, directly or indirectly by Millenium, as well as its interest in
the Escrowed Proceeds and any other cash of Millenium that is required by the
terms of the Indenture to be deposited with the Trustee.
Each Subsidiary Guarantor will pledge and assign substantially all its
assets to the Collateral Agent or the Trustee to secure, among other things, the
Exchange Notes, its Subsidiary Guarantee of the Exchange Notes and the other
Obligations. The assets to be so pledged and assigned by each Subsidiary
Guarantor shall include, subject to Permitted Liens, all its right, title and
interest in and to (i) its Mortgaged Vessel (or any Qualified Substitute
Vessel), pursuant to a Mortgage issued by such Subsidiary Guarantor in favor of
the Collateral Agent; (ii) the Charters, if any, relating to its Mortgaged
Vessel, including the collateral right to receive all moneys due and to become
due under such Charters or in respect of such Mortgaged Vessel and all claims
for damages arising under such Charters or relating to such Mortgaged Vessel;
(iii) the freights and hires relating to its Mortgaged Vessel; (iv) all its
policies and contracts of insurance taken out from time to time in respect of
its Mortgaged Vessel pursuant to the Insurance Assignment between such
Subsidiary Guarantor and the Collateral Agent; and (v) all proceeds of the
foregoing (the foregoing (i) through (iv) collectively, the "Mortgaged
Collateral"). Obligations on the Exchange Notes will be satisfied from the
Mortgaged Collateral, if and to the extent that there are amounts remaining
after the satisfaction of Indebtedness Incurred
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pursuant to paragraph (b)(1) of the covenant described under "--Limitation on
Indebtedness" and paragraph (6) of the covenant described under "--Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries." See "The Mortgaged
Vessels."
In addition, the Collateral will consist of (i) Escrowed Proceeds, (ii)
Net Event of Loss Proceeds, (iii) Net Available Cash from the sale of a
Mortgaged Vessel and (iv) any cash deposited from time to time by Millenium with
the Trustee. Any cash on deposit from time to time with the Trustee that
constitutes Net Event of Loss Proceeds and Net Available Cash from the sale of a
Mortgaged Vessel will be released, subject to the terms and conditions of the
Indenture, as described under "--Redemptions--Redemption Upon Sale or Loss of a
Mortgaged Vessel" and "--Tender of Qualified Substitute Vessel."
Upon performance and payment in full of all the Obligations, all such
pledges and assignments in favor of the Trustee shall terminate.
At the closing of the offering of the Existing Notes, Millenium
delivered appraisals conducted in February 1998, March 1998 and June 1998 by
independent Appraisers of the values of the Existing Vessels and the Committed
Vessels, which appraisals showed that the average of such Appraisers' aggregate
appraised values of such Vessels, as of their respective dates was $83.2
million, resulting in ratios of the initial aggregate Accreted Value of Exchange
Notes outstanding (less the amount of Escrowed Proceeds consisting of cash or
Temporary Cash Investments) to the aggregate appraised value of the Mortgaged
Vessels of approximately .78 to 1.
Notwithstanding the foregoing, so long as no Event of Default shall
have occurred and be continuing, Millenium or any Subsidiary Guarantor may,
without any release or consent by the Collateral Agent or the Trustee, conduct
ordinary course activities in respect of the Collateral, in limited dollar
amounts, upon satisfaction of certain conditions. For example, among other
things, subject to such dollar limitations and conditions, Millenium or any
Subsidiary Guarantor would be permitted to sell or otherwise dispose of any
machinery, equipment, furniture, tools, materials or supplies or other similar
property subject to the Lien of the Security Agreements, which may have become
worn out or obsolete; grant rights-of-way and easements over or in respect of
property; abandon, terminate, cancel, release or make alterations in or
substitutions of any leases, contracts or rights-of-way subject to the Lien of
any of the Security Agreements; surrender or modify any franchise, permit or
license subject to the Lien of any of the Security Agreements which it may own
or under which it may be operating; alter, repair, replace, change the location
or position of and add to its offices, machinery, systems, equipment, fixtures
and appurtenances; demolish, dismantle, tear down or scrap any Collateral or
abandon any thereof other than land or interests in land (other than leases) and
other than the Mortgaged Vessels; and grant leases in respect of real property
under certain circumstances.
Ranking
The Exchange Notes will be senior secured obligations of Millenium,
will rank pari passu in right of payment with all existing and future senior
indebtedness of Millenium and will be senior in right of payments to all future
subordinated indebtedness of Millenium; provided, however, Indebtedness Incurred
under the provision described in paragraph (b)(1) of the covenant described
under "--Limitation on Indebtedness" and in paragraph (6) of the covenant
described under "--Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" will be secured by a Lien on the Mortgaged Vessels that will have
priority over the Lien in favor of the holders of the Exchange Notes. Millenium
has obtained a working capital facility in the maximum committed amount of up to
$7.0 million. Millenium's obligations thereunder are guaranteed by the
Subsidiary Guarantors and are secured by a lien on the Mortgaged Vessels that is
prior to the lien in favor of the Holders of the Exchange Notes. Certain
additional Indebtedness, including Indebtedness Incurred upon the satisfaction
of a financial test, may be Incurred by Millenium. As of the date of this
Prospectus, Millenium has no senior indebtedness outstanding other than the
Existing Notes.
With respect to each Subsidiary Guarantor and subject to admiralty law
in each relevant jurisdiction, claims of Holders will rank pari passu with
claims of the creditors of such Subsidiary Guarantor, but will rank ahead of
such claims (other than claims represented by Permitted Liens) to the extent of
the value, priority and validity of such Subsidiary Guarantor's Mortgage of its
respective Mortgaged Vessel. Although the Holders of the Exchange Notes should
be entitled to payment of their indebtedness out of the proceeds of their
Collateral prior to the holders of any general unsecured obligations of the
Subsidiary Guarantors or Millenium, in the event that the value of any
Subsidiary Guarantor's Collateral is insufficient to discharge each Subsidiary
Guarantor's obligations under its Subsidiary Guarantee, claims of the Holders
against such Subsidiary Guarantor will rank pari passu with the claims of
creditors (including trade creditors) of such Subsidiary Guarantor and claims of
the Holders against Millenium will be effectively subordinated to the claims of
creditors (including trade creditors) and holders of Preferred Stock of
subsidiaries other than the Subsidiary Guarantors. Although the Indenture limits
the incurrence of Indebtedness and Preferred Stock of Millenium's Subsidiaries,
such limitation is subject to a number of significant qualifications. Moreover,
the Indenture does not impose any limitation on the incurrence by such
Subsidiaries of liabilities that are not considered Indebtedness or Preferred
Stock under the Indenture.
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Registration Rights
In connection with the issuance of the Existing Notes, the Company
entered into a Registration Rights Agreement with the Initial Purchasers
pursuant to which the Company agreed, for the benefit of the Holders of the
Existing Notes, at the Company's expense, to use its best efforts to cause the
Registration Statement of which this Prospectus forms a part to be declared
effective under the
Securities Act.
Promptly after the Registration Statement of which this Prospectus
forms a part is declared effective, the Company has agreed to commence the
Exchange Offer and to keep the Exchange Offer open for 30 days with the right to
extend the Exchange Offer up to a maximum
of 60 days.
If, (i) because of any change in law or applicable interpretations
thereof by the Commission's staff, the Company is not permitted to effect the
Exchange Offer as contemplated by the Registration Rights Agreement, or (ii) the
Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, or (iii) any Initial Purchaser so requests with
respect to Existing Notes held by it following consummation of the Exchange
Offer or (iv) any Holder of Exchange Notes (other than an Exchanging Dealer) is
not eligible to participate in the Exchange Offer, or any Holder (other than an
Exchanging Dealer) participates in the Exchange Offer does not receive freely
tradable Exchange Notes on the date of such exchange, the Company will, at its
cost, (a) as promptly as practicable (but in no event more than 30 days after
such filing obligation arises or a request is made by the Initial Purchasers),
file a shelf registration statement (a "Shelf Registration Statement") with the
Commission relating to the offer and sale of the Exchange Notes or the Existing
Notes, (b) cause such Shelf Registration Statement to be declared continuously
effective under the Securities Act and (c) use its respective best efforts to
keep such Shelf Registration Statement continuously effective under the
Securities Act for a period of two years or such shorter period that will
terminate when all the Exchange Notes or Existing Notes, as applicable, covered
by such Shelf Registration Statement have been sold or are no longer restricted
securities as defined in Rule 144 of the Securities Act. The Company will, in
the event of filing such a Shelf Registration Statement, provide to each holder
of the Exchange Notes one copy of such Shelf Registration Statement and any
post-effective amendment thereto In addition, the Company shall notify each
Holder when such Shelf Registration Statement for the Exchange Notes has been
filed with the Commission and when such Shelf Registration Statement or any
post-effective amendment thereto has become effective and take certain other
actions as are required to permit unrestricted resales of the Exchange Notes. A
holder of Exchange Notes that sells such Exchange Notes pursuant to a Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Statement which are applicable to such a holder
(including certain indemnification and contribution rights and obligations). In
addition, such holder of Exchange Notes will be required to deliver certain
information to be used in connection with the Shelf Registration Statement in
order to have its Exchange Notes included thereunder.
If the Exchange Offer is not consummated by January 20, 1999, a
Registration Default will be deemed to have occurred and Additional Interest
will accrue on the Existing Notes from such date to the date the Exchange Offer
is consummated, at a rate of 0.50% of the principal amount thereof per annum,
which Additional Interest is payable semiannually in arrears on each Payment
Date. Interest on the Exchange Notes will accrue at a rate of 12 1/2 % per annum
to reflect the 0.50% of Additional Interest until such Registration Default has
been cured.
Upon consummation of the Exchange Offer, the Company generally will
have satisfied its obligations under the Registration Rights Agreement with
respect to registration of the Existing Notes and generally will have no further
obligation to register the Existing
Notes.
A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require Millenium to repurchase
such Holder's Exchange Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date):
(i) Prior to the earlier to occur of (A) the first public
offering of common stock of Parent or (B) the first public offering of
common stock of Millenium, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of a majority in the aggregate
of the total voting power of the Voting Stock of Millenium, whether as
a result of issuance of securities of Parent or Millenium, any merger,
consolidation, liquidation or dissolution of Parent
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or Millenium, any direct or indirect transfer of securities by Parent
or otherwise (for purposes of this clause (i) and clause (ii) below,
the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the
parent corporation);
(ii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a Permitted Holder, is or
becomes the beneficial owner (as defined in clause (i) above, except
that for purposes of this clause (ii) such person shall be deemed to
have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock of Millenium; provided,
however, that the Permitted Holders beneficially own (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of Millenium
than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the Board of Directors (for the purposes of this clause
(ii), such other person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation, if such
other person is the beneficial owner (as defined in this clause (ii)),
directly or indirectly, of more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted Holders
beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right
or ability by voting power, contract or otherwise to elect or designate
for election a majority of the board of directors of such parent
corporation);
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of
Millenium was approved by a vote of 66 2/3% of the directors of
Millenium then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office; and
(iv) the merger or consolidation of Millenium with or into
another Person or the merger of another Person with or into Millenium,
or the sale of all or substantially all the assets of Millenium to
another Person (other than a Person that is controlled by the Permitted
Holders), and, in the case of any such merger or consolidation, the
securities of Millenium that are outstanding immediately prior to such
transaction and which represent 100% of the aggregate voting power of
the Voting Stock of Millenium are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving
corporation.
Within 30 days following any Change of Control, Millenium shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require Millenium to
purchase such Holder's Exchange Notes at a purchase price in cash equal to 101%
of the Accreted Value thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by
Millenium, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Exchange Notes purchased.
Millenium shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, Millenium shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is solely a result of
negotiations between Millenium and the Initial Purchasers. Millenium has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that Millenium could decide to do so in the future.
Subject to the limitations discussed below, Millenium could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect Millenium's capital structure or credit ratings.
Restrictions on the ability of Millenium to incur additional Indebtedness are
contained in the covenants described under "--Certain Covenants" under
"--Limitation on Indebtedness," "--Limitation on Liens" and "--Limitation on
Sale/Leaseback Transactions." Such restrictions can only be waived with the
consent of the Holders of a majority in principal amount at maturity of the
Exchange Notes then outstanding. Except for the limitations
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contained in such covenants, however, the Indenture will not contain any
covenants or provisions that may afford Holders of the Exchange Notes protection
in the event of a highly leveraged transaction.
Future indebtedness of Millenium may contain prohibitions on the
occurrence of certain events that would constitute a change of control
thereunder or require such indebtedness to be repurchased upon a change of
control thereunder. Moreover, the exercise by the Holders of their right to
require Millenium to repurchase the Exchange Notes upon a Change of Control
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to a cross-default provision or the financial effect of
such repurchase on Millenium. Finally, Millenium's ability to pay cash to the
Holders of Exchange Notes following the occurrence of a Change of Control may
also be limited by Millenium's then existing financial resources. There can be
no assurance that sufficient funds will be available when necessary to make any
required repurchases. The provisions under the Indenture relative to Millenium's
obligation to make an offer to repurchase the Exchange Notes as a result of a
Change of Control may be waived or modified with the written consent of the
holders of a majority in principal amount of the Exchange Notes.
Certain Covenants
The Indenture will provide that the following covenants, among others,
will be applicable to Millenium and its Restricted Subsidiaries:
Limitation on Indebtedness. (a) Millenium shall not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence and after
giving effect thereto, (i) the Consolidated Coverage Ratio exceeds 2.0 to 1.0
and (ii) the Loan to Value Ratio (as of the most recent Appraisal Date occurring
not more than 30 days prior to the date of such Incurrence) does not exceed 0.85
to 1.00.
(b) In addition, without regard to compliance with the foregoing
paragraph (a), Millenium may Incur any or all of the following
Indebtedness:
(1) Indebtedness Incurred pursuant to a working capital line
of credit in an amount which, when added together with the amount of
all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed $7.0 million; provided, however, that the
proceeds of such working capital line of credit will be used solely for
working capital requirements, the payment of operating expenses and
interest on the Exchange Notes and untendered Existing Notes, if any;
(2) Indebtedness owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
such Indebtedness (other than to another Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such
Indebtedness by Millenium;
(3) the Existing Notes and the Exchange Notes;
(4) Indebtedness outstanding on the Original Issue Date (other
than Indebtedness described in clause (1), (2) or (3) of this
covenant);
(5) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (3), (4) or
this clause (5);
(6) Hedging Obligations consisting of Interest Rate Agreements
or Currency Agreements directly related to Indebtedness permitted to be
Incurred by Millenium pursuant to the Indenture;
(7) Indebtedness Incurred pursuant to Section 5.04(b) or
5.04(c) of the Warrant Agreement;
(8) Guarantees of any Indebtedness of a Restricted Subsidiary
permitted by the covenant described under "--Limitation on Indebtedness
and Preferred Stock of Restricted Subsidiaries"; and
(9) Indebtedness in an aggregate amount which, together with
all other Indebtedness of Millenium outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through
(8) above or paragraph (a)) does not exceed $2.0 million.
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(c) Notwithstanding the foregoing, Millenium shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Exchange Notes to at least the
same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, Millenium, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. Millenium shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except that a
Restricted Subsidiary may Incur the following Indebtedness
or Preferred Stock:
(1) Indebtedness or Preferred Stock issued to and held by a
Wholly Owned Subsidiary or Millenium; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in
any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of such Indebtedness or Preferred
Stock (other than to Millenium or another Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness or Preferred Stock by the Restricted Subsidiary;
(2) Guarantees of the Existing Notes and the Exchange Notes;
(3) Indebtedness or Preferred Stock outstanding on the
Original Issue Date (other than Indebtedness or Preferred Stock
described in clauses (1) or (2) of this covenant);
(4) Refinancing Indebtedness in respect of Indebtedness or
Preferred Stock Incurred pursuant to clause (2), (3) or this clause
(4);
(5) Indebtedness or Preferred Stock for the purpose of
acquiring additional Vessels; provided, however, that, at the date of
such Incurrence and after giving effect thereto, (i) no Default or
Event of Default shall have occurred and be continuing, (ii) the
Consolidated Coverage Ratio shall be at least 2.0 to 1.0 and (iii) the
Loan to Value Ratio (as of the most recent Appraisal Date occurring not
more than 30 days prior to the date of such Incurrence) does not exceed
0.85 to 1.00; and
(6) Guarantees in respect of Indebtedness Incurred pursuant to
clause (b)(1) of the covenant described under "--Limitation on
Indebtedness."
Limitation on Restricted Payments. (a) Millenium shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time Millenium or such Restricted Subsidiary makes
such Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) Millenium is not able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Original Issue Date would
exceed the sum of (without duplication):
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which
the Existing Notes were originally issued to the end of the most recent
fiscal quarter for which internal financial statements are available
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by Millenium from
contributions to Millenium's capital and the issuance or sale of its
Capital Stock (other than Disqualified Stock) subsequent to the
Original Issue Date (other than (i) in respect of the Committed
Vessels, (ii) an issuance or sale to a Subsidiary of Millenium and
(iii) an issuance or sale to an employee stock ownership plan or to a
trust established by Millenium or any of its Subsidiaries for the
benefit of their employees to the extent such issuance or sale is
financed with proceeds of debt provided by Millenium or any Subsidiary
of Millenium);
(C) the amount by which Indebtedness of Millenium is reduced
on Millenium's balance sheet upon the conversion or exchange (other
than by a Subsidiary of Millenium) subsequent to the Original Issue
Date of any Indebtedness of Millenium convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of Millenium (less the
amount of any cash, or the fair value of any other property,
distributed by Millenium upon such conversion or exchange); and
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(D) an amount equal to the net reduction in Investments in
Persons after the Original Issue Date who are not Restricted
Subsidiaries (other than Permitted Investments) resulting from (x)
Qualified Proceeds received as a dividend, repayment of a loan
(including interest) or advance or other transfer of assets (valued at
the fair market value thereof) to Millenium or any Restricted
Subsidiary from such Persons, (y) Qualified Proceeds received upon the
sale or liquidation of such Investment and (z) the redesignation of
Unrestricted Subsidiaries whose assets are used or useful in, or which
are engaged in, a Shipping Business as Restricted Subsidiaries (valued
(proportionate to Millenium's direct or indirect equity interest in
such Subsidiary) at the fair market value of the net assets of such
Subsidiary at the time of such redesignation) not to exceed, in the
case of clauses (x), (y) and (z), the amount of Investments previously
made by Millenium or any Restricted Subsidiary in such Person, which
amount was a Restricted Payment.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any acquisition of Capital Stock (including the
acquisition of Capital Stock deemed to occur upon exercise of stock
options if such Capital Stock represents a portion of the exercise
price of such options) or any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Obligations made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Millenium (other
than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary of Millenium or an employee stock ownership plan or to a
trust established by Millenium or any of its Subsidiaries for the
benefit of their employees to the extent such sale to such plan or
trust is financed with proceeds of debt provided by Millenium or any
Subsidiary of Millenium); provided, however, that (A) such purchase,
repurchase, redemption, defeasance or other acquisition or retirement
for value shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall
be excluded from the calculation of amounts under clause (3)(B) of
paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent
sale of, Indebtedness of Millenium which is permitted to be Incurred
pursuant to the covenant described under "--Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted
Payments;
(iii) any acquisition of the Warrants or Warrant Shares (as
such terms are defined in the Warrant Agreement) made in exchange for
Subordinated Obligations of Millenium issued pursuant to the indenture
attached as an exhibit to the Warrant Agreement as described in Section
5.04 of the Warrant Agreement; provided, however, that no Default or
Event of Default shall have occurred and be continuing; provided
further, however, that such acquisition shall be excluded in the
calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that at the time
of payment of such dividend, no other Default shall have occurred and
be continuing (or result therefrom); provided further, however, that
the declaration of such dividend shall be included
in the calculation of the amount of Restricted Payments;
(v) the repurchase, redemption or other acquisition of shares
of, or options to purchase shares of, Capital Stock of Millenium or any
of its Subsidiaries from employees, former employees, directors or
former directors of Millenium or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), or amounts paid to Parent on account of any such
repurchase, redemption or other acquisition or retirement for value of
any Capital Stock of Parent held by any present or former employees or
directors of Parent or Millenium pursuant to the terms of agreements
(including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares
of such Capital Stock; provided, however, that the aggregate amount of
such repurchases and other acquisitions shall not exceed $500,000 in
any calendar year (provided that to the extent that less than $500,000
of such Capital Stock is so repurchased, redeemed or acquired in a
given year, the difference between $500,000 and such amount shall be
added to the amount available to Parent, Millenium and its Subsidiaries
for repurchases, redemptions and acquisitions in future years (subject
to a maximum in any calendar year of $1.0 million)); provided further,
however, that such repurchases, redemptions and other acquisitions
shall be excluded in the calculation of the amount of Restricted
Payments;
(vi) payments by Millenium's Subsidiaries (whether in
existence on the Original Issue Date or subsequently acquired or
formed) to the Parent pursuant to the terms of the New Management
Agreement; provided, however, that such payments shall be excluded in
the calculation of the amount of Restricted Payments; provided further,
however, that no Default or Event of Default
shall have occurred and be continuing;
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(vii) payments to the Parent pursuant to the Advisory
Agreement; provided, however, that such payments shall be excluded in
the calculation of the amount of Restricted Payments; provided further,
however, that no Default or Event of Default shall have occurred and be
continuing;
(viii) payments to Parent to enable Parent to pay foreign,
Federal, state or local tax liabilities to the appropriate taxing
authorities, not to exceed the amount of any tax liabilities that would
otherwise be payable by Millenium and its Subsidiaries on a
consolidated basis if they filed separate tax returns, to the extent
that Parent has an obligation to pay such tax liabilities relating to
the operations, assets or capital of Millenium or its Subsidiaries;
provided, however, that such payments shall be included in the
calculation of the amount of Restricted Payments; or
(ix) the payment of dividends on Millenium's common stock,
following the first Public Equity Offering, (A) of up to 6% per annum
of the Net Cash Proceeds received by Millenium from such public
offering of its common stock or (B) in an amount to enable Parent to
pay dividends on its capital stock of up to 6% per annum of the Net
Cash Proceeds actually received by Millenium from such public offering
of Parent's common stock as common equity or preferred equity (other
than Disqualified Stock), provided, however, that no Default or Event
of Default shall have occurred and be continuing immediately after any
such payment of dividends; and provided, further, however, that such
Restricted Payment shall be included in the calculation of the amount
of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Millenium shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to Millenium or a Restricted Subsidiary or pay any Indebtedness owed to
Millenium, (b) make any loans or advances to Millenium or (c) transfer any of
its property or assets to Millenium, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Original Issue Date;
(ii) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary
on or prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by Millenium (other than
Indebtedness or Preferred Stock Incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by Millenium) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness or Preferred Stock Incurred
pursuant to an agreement referred to in clause (i) or (ii) of this
covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this
clause (iii); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Holders
than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements;
(iv) any such encumbrance or restriction consisting of
customary nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the
lease or the property leased thereunder;
(v) in the case of clause (c) above, restrictions contained in
(A) security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary or (B) joint venture or similar agreements to the
extent such restrictions restrict the transfer of the property subject
to such security agreements, mortgages or joint venture agreements or
require the assignment of earnings attributable to such property; and
(vi) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition.
Limitation on Asset Sales. (a) Millenium shall not, and shall not
permit any Subsidiary Guarantor to, sell, assign, convey, transfer or otherwise
dispose of a Mortgaged Vessel or any other portion of the Collateral (other than
an Incidental Asset); provided, however, that a Subsidiary Guarantor may sell a
Mortgaged Vessel (at the option of such Subsidiary Guarantor, together with the
applicable Charters, freights and hires and other related agreements) or
Millenium may sell all the Capital Stock of a Subsidiary Guarantor (any such
asset proposed
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to be sold is referred to herein as a "Mortgaged Vessel Asset") if such sale of
a Mortgaged Vessel Asset shall be made in compliance with each of the following
conditions:
(i) no Default shall have occurred and be continuing;
(ii) the sale or transfer shall be effected in a commercially
reasonable manner as determined by the Board of Directors and evidenced
by a board resolution;
(iii) 80% of such consideration for such sale shall be cash or
Temporary Cash Investments or the assumption of Senior Indebtedness of
Millenium or a Restricted Subsidiary (provided that Millenium or such
Restricted Subsidiary is released from all liabilities thereunder),
which aggregate consideration shall be not less than the Appraised
Value of such Mortgaged Vessel Asset; provided, however, that 100% of
such consideration shall be used to calculate "Net Available Cash" for
purposes of clause (iv) below; provided further, however, that any
securities, notes or other obligations received by Millenium or any
Subsidiary Guarantor from the transferee of the Mortgaged Vessel Asset
that are promptly converted by Millenium or such Subsidiary Guarantor
into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this clause (iii);
(iv) funds in an amount equal to the Net Available Cash shall
be paid in full directly to the Trustee as Collateral and shall be
received by the Trustee free of any Lien (other than the Lien of the
Indenture and the Security Agreements) but shall not constitute
Escrowed Proceeds; and
(v) Millenium shall have complied with the other provisions of
the Indenture and the Security Agreements applicable to such sale.
Millenium shall apply the proceeds from such sale as described above
under "--Redemptions--Redemption Upon Sale or Loss of a Mortgaged Vessel" or
"--Tender of Qualified Substitute Vessel."
(b) Millenium shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any Asset Sales (other than Asset Sales permitted by
paragraph (a) above) unless (x) (A) such Asset Sale is by Millenium (other than
the Capital Stock of a Subsidiary Guarantor) or by a Restricted Subsidiary that
is not a Subsidiary Guarantor or (B) such Asset Sale is the sale of an
Incidental Asset and (y) in the event and to the extent that the Net Available
Cash received by Millenium or any of its Restricted Subsidiaries from one or
more of such Asset Sales occurring on or after the Closing Date in any period of
12 consecutive months exceeds $10 million, then Millenium shall or shall cause a
Restricted Subsidiary to, within 30 days after the date Net Available Cash so
received exceeds $10 million in any period of 12 consecutive months, apply an
amount equal to such Net Available Cash either (i) toward a Permitted Excess
Cash Use or (ii) treat (no later than the end of such 30-day period) such excess
Net Available Cash (to the extent not applied pursuant to clause (i) above) as
Excess Proceeds.
Limitation on Lines of Business. Millenium shall not, and shall not
permit any of its Restricted Subsidiaries to, engage in any business other than
the Shipping Business.
Limitation on Affiliate Transactions. (a) Millenium shall not, and
shall not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of Millenium (an "Affiliate Transaction") unless the terms thereof (1)
are no less favorable to Millenium or such Restricted Subsidiary than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $1.0 million, (i) are set forth in writing and
(ii) have been approved by a majority of the members of the Board of Directors
having no personal stake in such Affiliate Transaction and (3) if such Affiliate
Transaction involves an amount in excess of $5.0 million, have been determined
by a reasonably appropriate independent qualified Appraiser, given the size and
nature of the transaction, to be fair, from a financial standpoint, to Millenium
and its Restricted Subsidiaries (which, in the case of an Affiliate Transaction
or series of Affiliate Transactions involving the purchase or sale of a
Mortgaged Vessel by Millenium or a Restricted Subsidiary in exchange for
consideration in which $2.0 million or less consists of non-cash consideration,
may be satisfied by delivery of a certificate of an Appraiser stating that (x)
in the case of the purchase of a Mortgaged Vessel, the consideration paid does
not exceed the Appraised Value of such Mortgaged Vessel or (y) in the case of
the sale of a Mortgaged Vessel, the consideration received is at least equal to
the Appraised Value of such Mortgaged Vessel; provided, however, that any
securities, notes or other obligations received by Millenium or any Subsidiary
Guarantor from the transferee of the Mortgaged Vessel Asset that are promptly
converted by Millenium or such Subsidiary Guarantor into cash (to the extent of
the cash received), shall be deemed to constitute cash consideration for
purposes of this provision).
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(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Permitted Investment or Restricted Payment permitted to be paid pursuant
to the covenant described under "--Limitation on Restricted Payments", (ii) any
issuance of securities or other customary employee benefits pursuant to
employment arrangements approved by the Board of Directors, (iii) the grant of
stock options or similar rights to employees and directors of Millenium pursuant
to plans approved by the Board of Directors, (iv) loans or advances to employees
in the ordinary course of business in accordance with the past practices of
Millenium or its Restricted Subsidiaries, but in any event not to exceed
$100,000 in the aggregate outstanding at any one time, (v) the payment of
reasonable fees and other benefits to directors of Millenium and its Restricted
Subsidiaries, (vi) any Affiliate Transaction between Millenium and a Qualified
Restricted Subsidiary or between Qualified Restricted Subsidiaries, (vii)
entering into and the performance of the New Management Agreement and (viii)
entering into and the performance of the Advisory Agreement.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Millenium shall not sell or otherwise dispose of any Capital Stock
(other than Qualified Preferred Stock) of a Restricted Subsidiary, and shall not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any of its Capital Stock (other than Qualified Preferred
Stock), except (i) to Millenium or a Wholly Owned Subsidiary, (ii) if,
immediately after giving effect to such issuance, sale or other disposition,
neither Millenium nor any of its Subsidiaries own any Capital Stock of such
Restricted Subsidiary, (iii) if, immediately after giving effect to such
issuance, sale or other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition, (iv) to directors or other
Persons of qualifying shares of common stock of any Restricted Subsidiary, to
the extent mandated by applicable law, (v) the issuance or sale of Capital Stock
of a Subsidiary Guarantor that has a class of equity security registered under
Section 12 of the Exchange Act pursuant to an employee stock option plan
approved by the Board of Directors, (vi) other than with respect to shares of
Capital Stock of a Subsidiary Guarantor, to management employees of Millenium or
a Restricted Subsidiary pursuant to the exercise of stock options or stock
appreciation rights; and (vii) other than with respect to shares of Capital
Stock of a Subsidiary Guarantor, to Persons who are entering into joint ventures
or other similar business relationships with Millenium or any Subsidiary other
than a Subsidiary Guarantor.
Limitation on Liens. Millenium shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Original Issue Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Exchange Notes shall be secured equally and ratably with (or prior to)
the obligations so secured for so long as such obligations are so secured;
provided, however, that no Lien that secures Indebtedness (other than the
Existing Notes and the Exchange Notes and Indebtedness Incurred pursuant to
paragraph (b)(1) of the covenant described under "--Limitation on Indebtedness"
and paragraph (6) of the covenant described under "-- Limitation on Indebtedness
and Preferred Stock of Restricted Subsidiaries") may be incurred or permitted to
exist on any of the Collateral.
Limitation on Sale/Leaseback Transactions. Millenium shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) Millenium or such Restricted
Subsidiary would be entitled to (A) incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" or "--Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Exchange Notes pursuant to the covenant described under
"--Limitation on Liens", (ii) the net proceeds received by Millenium or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) Millenium applies the proceeds of such transaction in
compliance with the covenant described under "--Limitation on Asset Sales."
Merger and Consolidation. Millenium shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under (a)
the laws of the United States of America, any State thereof or the
District of Columbia, (b) the laws of Cyprus, Liberia or the Cayman
Islands or (c) the laws of any other jurisdiction which at the time is
generally deemed acceptable by institutional lenders to the shipping
industry, as determined in good faith by the Board of Directors, and
the Successor Company (if not Millenium) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all the obligations of
Millenium under the Exchange Notes, the Indenture and the Security
Agreements;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary thereof as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at
the time of such transaction), no Default shall have occurred and be
continuing;
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(iii) immediately after giving effect to such transaction,
either (A) the Successor Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "--Limitation on Indebtedness" or (B) the Consolidated
Coverage Ratio of the Successor Company is equal to or greater than
that of Millenium immediately prior to such transaction;
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that
is not less than the Consolidated Net Worth of Millenium immediately
prior to such transaction;
(v) Millenium shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture; and
(vi) Millenium shall have delivered to the Trustee an Opinion
of Counsel to the effect that the Holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such
transaction and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such transaction had not occurred.
Notwithstanding the foregoing clauses (ii) through (iv), (a) any Wholly
Owned Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to Millenium and (b) Millenium may merge with an Affiliate
incorporated solely for the purpose of reincorporating Millenium in another
jurisdiction.
The Successor Company shall be the successor to Millenium and shall
succeed to, and be substituted for, and may exercise every right and power of,
Millenium under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Exchange Notes and untendered Existing
Notes, if any.
Millenium shall not permit any Subsidiary Guarantor to consolidate with
or merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to any Person (other
than Millenium or another Subsidiary Guarantor) unless:
(i) except in the case of a Subsidiary Guarantor that has been
disposed of in its entirety to another Person, whether through a
merger, consolidation or sale of Capital Stock or assets, if in
connection therewith Millenium provides an Officer's Certificate to the
Trustee to the effect that Millenium will comply with its obligations
under "--Limitation on Asset Sales" in respect of such disposition, the
resulting, surviving or transferee Person (if not such Subsidiary
Guarantor) shall be a Person organized and existing under the laws of
the jurisdiction under which such Subsidiary was organized or under the
laws of (a) the United States of America, or any State thereof or the
District of Columbia, (b) the Republic of Liberia, (c) the Commonwealth
of the Bahamas, (d) Cyprus, (e) the Republic of Panama or (f) the laws
of any other jurisdiction which at the time is generally deemed
acceptable by institutional lenders to the shipping industry, as
determined in good faith by the Board of Directors, and such Person
shall expressly assume, by a Guarantee Agreement, in a form
satisfactory to the Trustee, all the obligations of such Subsidiary, if
any, under its Subsidiary Guarantee and under the Security Agreements;
(ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person
as a result of such transaction as having been issued by such Person at
the time of such transaction), no Default shall have occurred and be
continuing; and
(iii) Millenium delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such Guarantee Agreement, if any,
complies with the Indenture.
Future Subsidiary Guarantors. To the extent that, after the Original
Issue Date, Millenium acquires the Additional Vessels with the Escrowed
Proceeds, each such Additional Vessel shall be acquired by a newly formed Wholly
Owned Subsidiary and Millenium shall cause such Wholly Owned Subsidiary to
execute and deliver to the Trustee a Guarantee Agreement pursuant to which such
Wholly Owned Subsidiary will Guarantee payment of the Exchange Notes on the same
terms and conditions as those set forth in the Indenture, to execute a Mortgage
in favor of the Collateral Agent pursuant to which such acquired Additional
Vessel shall thereafter be a Mortgaged Vessel for all purposes under the
Indenture and to satisfy such other conditions set forth in the Escrow
Agreement.
Impairment of Security Interest. Millenium shall not, and shall not
permit any Subsidiary Guarantor to, take or knowingly or negligently omit to
take, any action which action or omission might or would have the result of
materially impairing the security interest with respect to the Collateral for
the benefit of the Trustee and the Holders of the Exchange Notes, and, subject
to the final paragraph of "--
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Collateral" above, Millenium shall not, and shall not permit any Restricted
Subsidiary to, grant to any Person other than the Trustee, for the benefit of
the Trustee and the Holders of the Exchange Notes, and other than the holder of
Indebtedness Incurred and outstanding pursuant to paragraph (b)(i) of the
covenant described under "--Limitation on Indebtedness" and paragraph (6) of the
covenant described under "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries," any interest whatsoever in any of the Collateral.
Amendments to Security Agreements. Millenium shall not, and shall not
permit any Subsidiary Guarantor to, amend, modify or supplement, or permit or
consent to any amendment, modification or supplement of, the Security Agreements
in any way that would be adverse to the Holders of the Exchange Notes.
SEC Reports. Notwithstanding that Millenium may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act applicable to a "foreign private issuer" (as such term is defined
in Rule 3b-4 under the Exchange Act), Millenium shall file with the SEC and
furnish to the Trustee, Holders and prospective Holders, upon request, (i)
commencing with respect to the fiscal year ended December 31, 1998, within 120
days after the end of each fiscal year, an annual report on Form 20-F (or any
successor form) containing the information required to be contained therein for
such fiscal year, and (ii) commencing with respect to the fiscal quarter ended
September 30, 1998, within 45 days after the end of each of the first three
quarters in each fiscal year, quarterly reports on Form 6-K consisting of
unaudited financial statements (including a balance sheet and statement of
income, changes in stockholders' equity and cash flows) and Management's
Discussion and Analysis of Financial Condition and Results of Operations for and
as of the end of each of such quarters (with comparable financial statements for
such quarter of the immediately preceding fiscal year).
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Exchange Notes when due, continued for 30 days, (ii)
a default in the payment of principal of any Exchange Note when due at its
Stated Maturity, upon optional redemption, required repurchase, declaration or
otherwise, (iii) the failure by Millenium to comply with its obligations under
"--Certain Covenants--Merger and Consolidation" above, (iv) the failure by
Millenium to comply for 30 days after notice with any of its obligations in the
covenants described above under "--Change of Control" (other than a failure to
purchase Exchange Notes) or under "--Certain Covenants" under "-- Limitation on
Indebtedness", "--Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries", "--Limitation on Restricted Payments", "--Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "--Limitation on
Asset Sales" (other than a failure to purchase Exchange Notes in an Excess
Proceeds Offer), "Limitation on Lines of Business", "--Limitation on Affiliate
Transactions", "-- Limitation on Sale of Capital Stock of Restricted
Subsidiaries", "--Limitation on Liens", "--Limitation on Sale/Leaseback
Transactions", "-- Future Subsidiary Guarantors", "--Impairment of Security
Interest", "--Amendment to Security Agreements" or "--SEC Reports", (v) the
failure by Millenium to comply with its other agreements contained in the
Indenture or in the Security Agreements, or the occurrence of an event of
default under a Mortgage after the lapse of any applicable grace period and such
failure or event of default continues for 60 days after notice, (vi)
Indebtedness of Millenium or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $5 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of Millenium or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any final judgment
or decree for the payment of money in excess of $5 million is entered against
Millenium or a Significant Subsidiary, remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision"), (ix) a Subsidiary
Guarantee ceases to be in full force and effect (other than in accordance with
the terms of such Subsidiary Guarantee) or a Subsidiary Guarantor denies or
disaffirms its obligations under its Subsidiary Guarantee (the "guarantee
default provision"), or (x) the security interest under the Security Agreements
shall, at any time, cease to be in full force and effect for any reason (other
than by operation of the provisions of the Indenture and the Security
Agreements) other than the satisfaction in full of all obligations under the
Indenture and discharge of the Indenture, or any security interest created
thereunder shall be declared invalid or unenforceable or Millenium or any
Subsidiary Guarantor shall assert, in any pleading in any court of competent
jurisdiction, that any such security interest is invalid or unenforceable (the
"security default provision"). However, a default under clauses (iv), (v) and
(viii) will not constitute an Event of Default until the Trustee or the holders
of 25% in principal amount at maturity of the outstanding Exchange Notes and
untendered Existing Notes, if any, notify Millenium of the default and Millenium
does not cure such default within the time specified after receipt of such
notice.
If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount at maturity of the outstanding
Exchange Notes and untendered Existing Notes, if any, may declare the principal
of and accrued but unpaid interest on all the Exchange Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of Millenium occurs and is continuing,
the principal of and interest on all the Exchange Notes will ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders of the Exchange Notes. Under certain
circumstances, the holders of a majority in principal amount at maturity of the
outstanding Exchange Notes and untendered Existing Notes, if any, may rescind
any such acceleration with respect to the Exchange
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Notes and untendered Existing Notes, if any, and its consequences. Subject to
the provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default occurs and is continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Holders of the Exchange Notes unless such
Holders have offered to the Trustee indemnity or security satisfactory to the
Trustee against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium (if any) or interest when due, no Holder
of a Note may pursue any remedy with respect to the Indenture or the Exchange
Notes unless (i) such Holder has previously given the Trustee notice that an
Event of Default is continuing, (ii) holders of at least 25% in principal amount
at maturity of the outstanding Exchange Notes and untendered Existing Notes, if
any, have requested the Trustee to pursue the remedy, (iii) such Holders have
offered the Trustee security or indemnity satisfactory to the Trustee against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt thereof and the offer of security or
indemnity and (v) the holders of a majority in principal amount at maturity of
the outstanding Exchange Notes and untendered Existing Notes, if any, have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount at maturity of the outstanding Exchange Notes and undtendered Existing
Notes, if any, are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and
is known to a corporate trust officer of the Trustee, the Trustee must mail to
each Holder of the Exchange Notes notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of principal of or
interest on any Note, the Trustee may withhold notice if and so long as a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the Holders of the Exchange Notes. In addition,
Millenium is required to deliver to the Trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. Millenium also is
required to deliver to the Trustee, within 30 days after the occurrence thereof,
written notice of any event which would constitute certain Defaults, their
status and what action Millenium is taking or proposes to take in respect
thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount at maturity of the
Exchange Notes and untendered Existing Notes, if any, then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Exchange Notes) and any past Default or Event of Default or compliance with
any provisions may also be waived with the consent of the holders of a majority
in principal amount at maturity of the Exchange Notes and untendered Existing
Notes, if any, then outstanding. However, without the consent of each Holder of
an outstanding Note affected thereby, no amendment may, among other things, (i)
reduce the amount of Exchange Notes and untendered Existing Notes, if any, whose
Holders must consent to an amendment, (ii) reduce the rate of or extend the time
for payment of interest on any Note, (iii) reduce the principal of or extend the
Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption
of any Note or change the time at which any Note may be redeemed as described
under "--Escrow of Proceeds; Special Mandatory Redemption" and "--Redemptions"
above, (v) make any Note payable in money other than that stated in the Note,
(vi) impair the right of any Holder of the Exchange Notes to receive payment of
principal of and interest on such Holder's Exchange Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Exchange Notes, (vii) make any change in the
amendment provisions which require each Holder's consent or in the waiver
provisions or (viii) make any change in any Guarantee or Security Agreement that
would adversely affect the Holders or terminate the Lien of the Indenture or any
Security Agreement on any property at any time subject hereto or thereto or
deprive the Holders of the security afforded by the Lien of the Indenture or the
Security Agreements.
Without the consent of any Holder of the Exchange Notes, Millenium, the
Subsidiary Guarantors, Trustee and the Collateral Agent may amend the Indenture
and the Security Agreements to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of Millenium or a Subsidiary Guarantor under the Indenture and the
Security Agreements, to provide for uncertificated Exchange Notes in addition to
or in place of certificated Exchange Notes (provided that the uncertificated
Exchange Notes are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Exchange Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Exchange Notes, to secure the Exchange Notes, to add to the covenants of
Millenium or a Subsidiary Guarantor for the benefit of the Holders of the
Exchange Notes or to surrender any right or power conferred upon Millenium or a
Subsidiary Guarantor, to make any change that does not adversely affect the
rights of any Holder of the Exchange Notes or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the Holders of the Exchange Notes is not necessary under
the Indenture or the Security Agreements to approve the particular form of any
proposed amendment. It is sufficient if such consent approves the substance of
the proposed amendment.
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After an amendment under the Indenture or the Security Agreements
becomes effective, Millenium is required to mail to Holders of the Exchange
Notes a notice briefly describing such amendment. However, the failure to give
such notice to all Holders of the Exchange Notes or any defect therein, will not
impair or affect the validity of the amendment.
Transfer
The Notes will be issued in registered form and will be transferable
(subject to applicable federal and state securities laws) only upon the
surrender of the Notes being transferred for registration of transfer. Millenium
may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
Defeasance
Millenium at any time may terminate all its obligations under the
Exchange Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Exchange Notes, to replace mutilated,
destroyed, lost or stolen Exchange Notes and to maintain a registrar and paying
agent in respect of the Exchange Notes. Millenium at any time may terminate its
obligations under "--Change of Control" and under the covenants described under
"--Certain Covenants" (other than the covenant described under "--Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries, the judgment
default provision, the guarantee default provision and the security default
provision described under "--Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under, and in the third paragraph
under, "--Certain Covenants--Merger and Consolidation" above ("covenant
defeasance").
Millenium may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If Millenium exercises its
legal defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default with respect thereto. If Millenium exercises its
covenant defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries), (viii), (ix) or (x) under
"--Defaults" above or because of the failure of Millenium to comply with clause
(iii) or (iv) of the first paragraph under, and with the third paragraph under,
"-- Certain Covenants--Merger and Consolidation" above. If Millenium exercises
its legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor will be released from all its obligations with respect to its
Subsidiary Guarantee and the Security Agreements, as applicable.
In order to exercise either defeasance option, Millenium must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Exchange Notes to redemption or maturity, as the case may be, and must comply
with certain other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that Holders of the Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
Concerning the Trustee and the Collateral Agent
The First National Bank of Maryland will be the Trustee under the
Indenture and has been appointed by Millenium as Registrar and Paying Agent with
regard to the Exchange Notes. The Trustee has appointed the Collateral Agent as
its agent under the Collateral Agency Agreement, and the Collateral Agent is
thereby authorized to act on behalf of the Trustee, with full authority and
powers of the Trustee
thereunder.
The Holders of a majority in principal amount at maturity of the
outstanding Exchange Notes and untendered Existing Notes, if any, will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Indenture provides that if an Event of Default occurs (and is not cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of its own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of Exchange
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
Governing Law
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The Indenture provides that it, the Exchange Notes, the Existing Notes
and each of the Security Agreements, other than the Mortgages, will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Enforceability of Judgments
Since most of the operating assets of Millenium and the Subsidiary
Guarantors are located outside the United States, any judgment obtained in the
United States against Millenium or a Subsidiary Guarantor, including judgments
with respect to the payment of principal of and interest on the Exchange Notes,
may not be collectible within the United States. See "Enforceability of Civil
Liabilities."
Consent to Jurisdiction and Service
The Indenture and the Security Agreements provide that Millenium and
each Subsidiary Guarantor appoint Kylco Maritime (USA), Inc., 645 Fifth Avenue,
New York, New York 10022 as its agent for actions brought under Federal or state
laws brought in any Federal or state court located in the Borough of Manhattan
in The City of New York and will submit to such jurisdiction. See "Enforcement
of Civil
Liabilities."
Certain Definitions
"Accreted Value" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount at maturity of the Notes:
(i) if the Specified Date occurs on one of the following dates
(each, a "Semi-Annual Accrual Date"), the Accreted Value
will equal the amount set forth below for such Semi-Annual Accrual
Date:
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
July 24, 1998 $ 965.93
January 15, 1999 967.51
July 15, 1999 969.20
January 15, 2000 970.98
July 15, 2000 972.88
January 15, 2001 974.90
July 15, 2001 977.06
January 15, 2002 979.34
July 15, 2002 981.78
January 15, 2003 984.36
July 15, 2003 987.12
January 15, 2004 990.05
July 15, 2004 993.16
January 15, 2005 996.47
July 15, 2005 $1,000.00
(ii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-Annual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is
the number of the days elapsed from the immediately preceding
Semi-Annual Accrual Date to the Specified Date, using a 360 day year of
twelve 30 day months, and the denominator of which is 180 (or, if the
Semi-Annual Accrual Date immediately preceding the Specified Date is
the Original Issue Date, the number of days from the Original Issue
Date to the next Semi-Annual Accrual Date).
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Shipping Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by Millenium or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Shipping Business.
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"Advisory Agreement" means the Advisory Agreement between Millenium and
Millenium Advisors, dated July 24, 1998.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants" under
"--Limitation on Restricted Payments", "--Limitation on Affiliate Transactions"
and "--Limitation on Asset Sales" only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 5% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of Millenium or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Appraisal Date" means each date as of which the Appraised Value of the
Mortgaged Vessels has been determined.
"Appraised Value" means the average of the fair market sale values as
of a specified date of a specified asset that would be obtained in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined by two Appraisers selected by Millenium and, in the event either
of such Appraisers is not a Designated Appraiser, reasonably acceptable to the
Trustee. If the Trustee does not accept an Appraiser (other than a Designated
Appraiser) selected by Millenium within 10 days of the first giving of notice by
Millenium to the Trustee requesting a determination of an Appraised Value (the
"Appraisal Request Date"), such Appraised Value shall be determined by a panel
of three Appraisers, one of whom shall be selected by Millenium, another of whom
shall be selected by the Trustee and the third of whom shall be selected by such
other two Appraisers or, if such Appraisers shall be unable to agree upon a
third Appraiser within 5 days of the selection date of the second of such two
Appraisers, by an arbitrator mutually acceptable to Millenium and the Trustee;
provided, however, that, if either party shall not select its Appraiser within
20 days after the Appraisal Request Date, such Appraised Value shall be
determined solely by the Appraiser selected by the other party. The Appraiser or
Appraisers appointed pursuant to the foregoing procedure shall be instructed to
determine such Appraised Value within 25 days after the final appointment of any
Appraiser pursuant hereto, and such determination shall be final and binding
upon the parties. If three Appraisers shall be appointed, (a) if the median of
the determinations of the Appraisers shall equal the average of such
determinations, such average shall constitute the determination of the
Appraisers; otherwise (b) the determination of the Appraiser that shall differ
most from the other two Appraisers shall be excluded, the remaining two
determinations shall be averaged and such average shall constitute the
determination of the Appraisers. For this purpose, the purchase price
(including, if applicable, the value of any upgrades thereto made by Millenium
in connection with or within six months after the acquisition of a Mortgaged
Vessel) of any Mortgaged Vessel acquired after the most recent Appraisal Date
shall constitute that Vessel's Appraised Value.
"Appraiser" means each of Fearnleys A.S., Oslo Shipbrokers A.S., R.S.
Platou Shipbrokers A.S., Bassoe A.S., Associated Shipbrokers S.A., H. Clarkson
Ltd., Simpson Spence & Young Shipbrokers Ltd., Axis Shipbrokers Ltd., Mallory
Jones Lynch & Flynn, Inc., A.L. Burbank, Inc., Nestun A.S., Lorentzen Stemoco
Shipbrokers A.S., Braemar Shipbrokers Ltd., Seabrokers, Inc., Seascope Shipping
Ltd., Barry Rogliano Salles, Poten & Partners, Inc., Wigham Richardson
Shipbrokers Limited and Equator Shipbroking Ltd. (each a "Designated Appraiser")
(and each successor thereto), together with any other Person not affiliated with
Millenium engaged in the business of appraising ocean-going vessels, including
bulk carriers.
"Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) (excluding the
granting of Liens) by Millenium or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition") in one
transaction or a series of related transactions, of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares or
shares required by applicable law to be held by a Person other than Millenium or
a Restricted Subsidiary), (ii) any Vessel, (iii) all or substantially all the
assets of any division or line of business of Millenium or any Restricted
Subsidiary or (iv) any other assets of Millenium or any Restricted Subsidiary
outside of the ordinary course of business of Millenium or such Restricted
Subsidiary (other than, in the case of (i), (ii), (iii) and (iv) above, (I) the
exchange of assets for other non-cash assets that (a) are useful in the Shipping
Business and (b) have a fair market value at least equal to the fair market
value of the assets being exchanged (as determined by the Board of Directors or
the board of directors of the Restricted Subsidiary which owns such assets in
good faith), (II) the sale, lease, transfer or other disposition of all or
substantially all of the assets of Millenium or its Restricted Subsidiaries
(which will be governed by the provisions described under "--Certain
Covenants--Merger and Consolidation" and not by the provisions of the covenant
described under "--Certain Covenants--Limitation on Asset Sales"), (III) a
disposition by a Restricted Subsidiary to Millenium or by Millenium or a
Restricted Subsidiary to a Restricted Subsidiary, (IV) for purposes of the
covenant described under "-- Certain Covenants--Limitation on Asset Sales" only,
a disposition that constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" and (V) a disposition of assets with a fair market value of
less than $500,000).
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"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such
payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of Millenium or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Saturday, Sunday or a day
on which banking institutions are authorized or permitted to close in the States
of New York and Maryland.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities
convertible into such equity.
"Charter" means each charterparty between a Subsidiary Guarantor and
any third party with respect to such Subsidiary Guarantor's
Mortgaged Vessel, and as the same may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means, in each case as pledged and assigned to the Trustee
or the Collateral Agent pursuant to the Security Agreements: (1) all the issued
and outstanding capital stock of each Subsidiary Guarantor owned, directly or
indirectly, by Millenium, pledged in favor of the Trustee pursuant to the
Indenture; (2) all cash held by the Trustee or the Escrow Agent pursuant to the
Indenture or the Security Agreements; and (3) each Subsidiary Guarantor's right,
title and interest in and to (i) its respective Mortgaged Vessel, pursuant to a
Mortgage issued by such Subsidiary Guarantor in favor of the Collateral Agent;
(ii) the Charters, if any, relating to its Mortgaged Vessel, including the right
to receive all monies due and to become due under such Charters or in respect of
such Mortgaged Vessel and all claims for damages arising under such Charters or
relating to such Mortgaged Vessel; (iii) the freights and hires relating to its
Mortgaged Vessel; (iv) all its policies and contracts of insurance taken out
from time to time in respect of its Mortgaged Vessel; and (v) all proceeds of
any of the foregoing.
"Collateral Agency Agreement" means the Collateral Agency and
Intercreditor Agreement dated as of July 1, 1998, among the Trustee, the
Collateral Agent, the Working Capital Facility Provider, Millenium and the
Subsidiary Guarantors.
"Collateral Agent" means The First National Bank of Maryland, its
successors and assigns.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker (as defined below) as having a
maturity comparable to the weighted average maturity of the remaining term of
the Notes outstanding that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to such weighted average maturity of the
Notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the Reference Treasury Dealer Quotations (as defined below)
for such redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (ii) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such Reference Treasury
Dealer Quotations.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
for which internal financial statements are available to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that
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(1) if Millenium or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding on the date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred
on the first day of such period,
(2) if Millenium or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense
for such period shall be calculated on a pro forma basis as if such
discharge had occurred on the first day of such period and as if
Millenium or such Restricted Subsidiary had not earned the interest
income actually earned during such period in respect of cash or
Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness,
(3) if since the beginning of such period Millenium or any
Restricted Subsidiary shall have made any Asset Sale, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of
such Asset Sale for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of Millenium or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to Millenium
and its continuing Restricted Subsidiaries in connection with such
Asset Sale for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent Millenium and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(4) if since the beginning of such period Millenium or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction
requiring a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the
first day of such period and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
Millenium or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Sale, any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (3)
or (4) above if made by Millenium or a Restricted Subsidiary during
such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to an
Asset Sale, to an Investment, to the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred or to an acquisition of assets and the
amount of income or earnings relating thereto, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting Officer of
Millenium. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months). For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of a Vessel or the financing
thereof, Millenium may (i) if the Vessel is to be subject to a time charter of
at least one year's duration by Millenium, apply pro forma EBITDA for such
Vessel based on such new time charter or (ii) if the Vessel is to be subject to
hire on a voyage charter basis by Millenium, apply EBITDA for such Vessel based
upon historical earnings of the most comparable Vessel of Millenium or any of
its Subsidiaries (as determined in good faith by the Board of Directors) during
such period, or if there is no such comparable vessel, based upon industry
average earnings for comparable Vessels (as determined in good faith by the
Board of Directors).
"Consolidated Interest Expense" means, for any period, the total
interest expense of Millenium and its Restricted Subsidiaries on a consolidated
basis, plus, to the extent not included in such total interest expense, and to
the extent incurred by Millenium or its Restricted Subsidiaries, without
duplication, (i) interest expense attributable to capital leases and the
interest expense attributable to leases constituting
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part of a Sale/Leaseback Transaction, (ii) amortization of debt discount and
debt issuance cost, (iii) capitalized interest, (iv) noncash interest expense,
(v) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than Millenium
or a Wholly Owned Subsidiary to the extent paid in cash in such period, (viii)
interest incurred in connection with Investments in discontinued operations,
(ix) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) Millenium or
any Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than Millenium)
in connection with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of
Millenium and its Subsidiaries on a consolidated basis; provided, however, that
there shall not be included in such Consolidated Net Income:
(i) any net income (or loss) of any Person (other than
Millenium) if such Person is not a Restricted Subsidiary, except that
subject to the exclusion contained in clause (iv) below, Millenium's
equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to
Millenium or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(iii) below);
(ii) any net income (or loss) of any Person acquired by
Millenium or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if at the
date of determination such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or
the making of distributions by such Restricted Subsidiary, directly or
indirectly, to Millenium, except that (A) subject to the exclusion
contained in clause (iv) below, Millenium's equity in the net income of
any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such
period to Millenium or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) Millenium's equity in a net loss of
any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of Millenium or its Subsidiaries on a
consolidated basis (including pursuant to any sale-and-leaseback
arrangement) which are not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon
the sale or other disposition of any Capital Stock of any Person;
(v) subject to clause (iv), extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting
principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to
Millenium or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Millenium and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP, as of the end of the most recent fiscal quarter
of Millenium for which internal financial statements are available prior to the
taking of any action for the purpose of which the determination is being made,
as (i) the par or stated value of all outstanding Capital Stock of Millenium
plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Appraiser" has the meaning assigned to it under the
definition of "Appraiser."
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"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the 91st day after the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring on or prior
to the 91st day after the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "--Certain
Covenants--Limitation on Asset Sales" and "--Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
the sum of the following expenses of Millenium and its Restricted Subsidiaries
on a consolidated basis, to the extent deducted in calculating such Consolidated
Net Income: (a) all United States Federal, state and local, and all foreign
income tax expense, (b) Consolidated Interest Expense, (c) depreciation expense,
(d) amortization expense (including in respect of intangibles) (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (e) all other noncash charges (excluding any such noncash
charge to the extent that it represents an accrual of or reserve for cash
expenditures in any future period), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to Millenium by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Event of Loss" means any of the following events: (a) the actual or
constructive total loss of a Vessel or the agreed or compromised total loss of a
Vessel, (b) the destruction of a Vessel, (c) damage to a Vessel to an extent,
determined in good faith by the Board of Directors within 90 days after the
occurrence of such damage (and evidenced by an Officers' Certificate to such
effect delivered to the Trustee, within such 90-day period), as shall make
repair thereof uneconomical or shall render such Vessel permanently unfit for
normal use (other than obsolescence) or (d) the condemnation, confiscation,
requisition, seizure, forfeiture or other taking of title to or use of a Vessel
that shall not be revoked within six months. An Event of Loss shall be deemed to
have occurred: (i) in the event of the destruction or other actual total loss of
a Vessel, on the date of such loss; (ii) in the event of a constructive, agreed
or compromised total loss of a Vessel, on the date of the determination of such
total loss pursuant to the relevant insurance policy; (iii) in the case of any
event referred to in clause (c) above, upon the delivery of Millenium's
Officers' Certificate to the Trustee; or (iv) in the case of any event referred
to in clause (d) above, on the date six months after the occurrence of such
event.
"Event of Loss Proceeds" means all compensation, damages and other
payments (including insurance proceeds other than certain liability insurance
proceeds) received by Millenium, any Subsidiary Guarantor, the Trustee or the
Collateral Agent, jointly or severally, from any Person, including any
governmental authority, with respect to or in connection with an Event of Loss.
"Excess Proceeds" means the amount of excess Net Available Cash from
Asset Sales not applied (or committed to be applied) pursuant to subclause (i)
of paragraph (b) of the covenant described under "--Certain
Covenants--Limitation on Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Notes" means Notes which are not Exchange Notes.
"Exchange Notes" means the notes of the Company exchanged hereunder for
Existing Notes pursuant to the Registered Exchange Offer in connection with
which this Prospectus is prepared, or in a private exchange.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Original Issue Date, including those
set forth in (i) the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
and pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Sections 13 or 15(d) of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
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"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Guarantee Agreement" means a supplemental indenture, in a form
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor becomes
subject to the applicable terms and conditions of the Indenture.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incidental Asset" is defined to mean any equipment, outfit, furniture,
furnishings, appliances, spare or replacement parts or stores owned by Millenium
or a Subsidiary Guarantor that have become obsolete or unfit for use or no
longer useful, necessary or profitable in the conduct of the business of
Millenium or such Subsidiary Guarantor, as the case may be. In no event shall
the term "Incidental Asset" include a Vessel or a Mortgaged Vessel.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable, including, in each case, any
premium on such indebtedness to the extent such premium has become due
and payable;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered
into by such Person;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations
of such Person and all obligations of such Person under any title
retention agreement (but excluding accounts payable
arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar
credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following payment on
the letter of credit);
(v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, the
liquidation preference with respect to, any Preferred Stock
(but excluding, in each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise, including
by means of any Guarantee;
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(vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so
secured; and
(viii) to the extent not otherwise included in this
definition, Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Independent Investment Banker" means a Reference Treasury Dealer
appointed by the Trustee after consultation with Millenium.
"Insurance Assignment" means the Insurance Assignment between a
Subsidiary Guarantor and the Collateral Agent.
"Interest Rate Agreement" means, in respect of a Person, any interest
rate swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to
Millenium's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of Millenium at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, Millenium shall be
deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) Millenium's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to Millenium's equity interest in such Subsidiary) of the
fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Original Issue Date" means the date on which the Notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Loan To Value Ratio" means, at any time, the ratio of
(x) the aggregate Accreted Value of the then outstanding Notes
(less the amount of any Collateral, including Escrowed Proceeds,
consisting of cash or Temporary Cash Investments at such time) to
(y) the aggregate Appraised Value of all Mortgaged Vessels at
such time.
If the Loan To Value Ratio is required to be calculated or adjusted at a time
prior to a Proceeds Receipt Date or when cash is on deposit with the Trustee as
part of the Collateral in connection with the sale of a Mortgaged Vessel or the
occurrence of an Event of Loss with respect to a Mortgaged Vessel, the then most
recent Appraised Value of such Lost Mortgaged Vessel (in the event such
determination is to be made prior to the Proceeds Receipt Date) or the amount of
such cash on deposit, as the case may be, shall be deemed to be the Appraised
Value of the Vessel giving rise to such cash on deposit and such Vessel shall be
deemed to be a Mortgaged Vessel for purposes of such computation or adjustment
of the Loan To Value Ratio.
"Mortgage" means a mortgage and the related deed of covenant, if any,
on a Vessel substantially in the form of and to the effect set forth as Exhibit
D to the Escrow Agreement.
"Mortgaged Vessels" means the Vessels owned by the Subsidiary
Guarantors from time to time, including the following Vessels (which are the
Existing Vessels and the Committed Vessels),
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<TABLE>
<CAPTION>
Official
Vessel Flag Number Year Built
- - - - - - ------ ---- ------ ----------
<S> <C> <C> <C>
Monica Marissa Panama 24935 1973
Clipper Harmony Panama 7703546 1978
Clipper Golden Hind Liberia 10245 1978
Clipper Pacific Cyprus 708918 1976
Clipper Atlantic Cyprus 708620 1975
Millenium Aleksander Cayman Islands * 1988
Millenium Elmar Cayman Islands 731940 1987
Millenium Leader Cayman Islands 731943 1984
Millenium Hawk Cayman Islands * 1984
Millenium Eagle Cayman Islands 731944 1983
Millenium Osprey Cayman Islands 731945 1984
Millenium Falcon Cayman Islands 731942 1981
Millenium Condor Cayman Islands 731946 1981
Millenium Amethyst Bahamas 720427 1978
Millenium Yama Bahamas 720493 1979
Millenium Majestic Bahamas 708268 1979
</TABLE>
* Not yet available.
If one of such Vessels shall be sold pursuant to the terms of the Indenture,
such Vessel shall cease to be a Mortgaged Vessel from and after the Sale Date. A
Qualified Substitute Vessel may be substituted for a Mortgaged Vessel in certain
circumstances and such substituted vessel shall become a Mortgaged Vessel upon
substitution in accordance with the terms of the Indenture.
"Net Available Cash" from an Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, brokerage and other commissions and other fees and expenses incurred
(including commissions under the Management Agreements), and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Sale, in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Sale, or by applicable law, be repaid
out of the proceeds from such Asset Sale, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Sale and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities (including indemnification liabilities) associated
with the property or other assets disposed in such Asset Sale and retained by
Millenium or any Restricted Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock or capital contribution, the cash proceeds and Temporary Cash
Investments proceeds of such issuance or sale (or, in the event the
consideration of such issuance or sale or contribution is other than cash, the
cash proceeds and Temporary Cash Investments proceeds actually received upon the
disposition of such other consideration) net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees actually incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Net Event of Loss Proceeds" means, with respect to any Event of Loss,
the Event of Loss Proceeds from such Event of Loss net of related fees and
expenses and payments made to repay related Indebtedness or any other related
obligation outstanding at the time of such Event of Loss; provided, however,
that such Indebtedness or other obligation is either (A) secured by a Lien on
the property or assets that suffered the Event of Loss or (B) required to be
paid as a result of such Event of Loss.
"New Management Agreement" means (i) the agreement entered into on the
Original Issue Date among the Subsidiary Guarantors and MMI with respect to the
Mortgaged Vessels on the Original Issue Date, (ii) any agreements replacing or
amending such agreements and (iii) agreements entered into subsequent to the
Original Issue Date with respect to Mortgaged Vessels or any Qualified
Substitute Vessels; provided, however, that with respect to clauses (ii) and
(iii), such agreements shall be on substantially the same terms as the terms in
effect on the Original Issue Date contained in the agreements described in
clause (i).
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"Notes" means the Existing Notes and the Exchange Notes.
"Parent" means any Person that owns directly or indirectly all the
Voting Stock of Millenium.
"Permitted Excess Cash Use" means (i) the repayment of unsubordinated
Indebtedness of Millenium or of a Subsidiary Guarantor (in each case other than
Indebtedness owed to an Affiliate of Millenium) or (ii) the investment in
Additional Assets.
"Permitted Holders" means (i) the members of MMI's management and their
respective affiliates as of the Original Issue Date and (ii) Millenium
Investment and Millenium Advisors, together with any Affiliates of either of
such Persons or of Stanton Capital.
"Permitted Investment" means an Investment by Millenium or any
Restricted Subsidiary in
(i) Millenium, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted
Subsidiary is a Shipping Business;
(ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, Millenium or a
Restricted Subsidiary; provided, however, that such Person's primary
business is a Shipping Business;
(iii) Temporary Cash Investments;
(iv) receivables owing to Millenium or any Restricted
Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary
trade terms as Millenium or any such Restricted Subsidiary deems
reasonable under the circumstances;
(v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
(vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of Millenium or such
Restricted Subsidiary in an aggregate amount not to exceed $100,000
outstanding at any one time;
(vii) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to
Millenium or any Restricted Subsidiary or in satisfaction of judgments
or received in connection with condemnation proceedings;
(viii) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale made in compliance with the
Indenture;
(ix) Investments made pursuant to Hedging Obligations to the
extent permitted by the covenants described under "-- Limitation on
Indebtedness"; and
(x) Investments in Persons primarily engaged in a Shipping
Business; provided, however, that any such Investment, when added
together with all other Investments made pursuant to this clause (x)
and then outstanding, does not exceed the sum of (A) $5.0 million plus
(B) 75% of the cumulative amount of Net Available Cash attributable to
Sold Mortgaged Vessels to the extent such Net Available Cash remains
after Millenium and its Restricted Subsidiaries have complied with the
provisions described under "-- Redemptions--Redemption Upon Sale or
Loss of a Mortgaged Vessel" or under "--Tender of Qualified Substitute
Vessel" to redeem Notes or to tender a Qualified Substitute Vessel with
respect to such Sold Mortgaged Vessels.
"Permitted Liens" means, with respect to any Person,
(a) Liens securing obligations under the Indenture, the Notes
and the Security Agreements;
(b) Liens existing on the Original Issue Date;
(c) Liens granted after the Original Issue Date in favor of
the Trustee, the Collateral Agent or the Holders;
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(d) Liens with respect to the assets of a Restricted
Subsidiary (other than a Subsidiary Guarantor) granted by such
Restricted Subsidiary to Millenium to secure Indebtedness owing to
Millenium by such Restricted Subsidiary;
(e) Liens for crews' wages (including the wages of a master
and the wages of stevedores employed directly by a Vessel) and pledges
or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a party,
or deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security
for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business;
(f) Liens imposed by law, such as carriers', warehousemen's
and mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other
proceedings for review;
(g) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by
appropriate proceedings;
(h) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; provided, however, that
such letters of credit do not constitute Indebtedness;
(i) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real
property or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially
impair their use in the operation of the business of such Person;
(j) Liens securing Indebtedness Incurred to finance the
construction, purchase or lease of, or repairs, improvements or
additions to, property of such Person; provided, however, that the Lien
may not extend to any other property owned by such Person or any of its
Subsidiaries at the time the Lien is Incurred, and the Indebtedness
(other than any interest thereon) secured by the Lien may not be
Incurred more than 180 days after the later of the acquisition,
completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien;
(k) Liens on receivables of Millenium and its Restricted
Subsidiaries or on the Mortgaged Collateral to secure Indebtedness
permitted under the provisions described in paragraph (b)(1) of the
covenant described under "--Limitation on Indebtedness" and in
paragraph (6) of the covenant described under "Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries";
(l) Liens on property or shares of Capital Stock of another
Person (other than a Subsidiary Guarantor) at the time such other
Person becomes a Subsidiary of such Person; provided, however, that
such Liens are not created, incurred or assumed in connection with, or
in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property owned by such Person or any of its Subsidiaries;
(m) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means
of a merger or consolidation with or into such Person or a Subsidiary
of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property owned by such Person or any of its Subsidiaries;
(n) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be
under the Indenture, secured by a Lien on the same property securing
such Hedging Obligations;
(o) any Lien which arises in favor of an unpaid seller in
respect of goods, plant or equipment sold and delivered to Millenium in
the ordinary course of business until payment of the purchase price for
such goods or plant or equipment or any other goods, plant or equipment
previously sold and delivered by that seller (except to the extent that
such Lien secures Indebtedness or arises otherwise than due to
deferment of payment of purchase price);
(p) any Lien or pledge created or subsisting in the ordinary
course of business over documents of title, insurance policies or sale
contracts in relation to commercial goods to secure the purchase price
thereof;
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(q) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clauses (b), (j), (l) and (m);
provided, however, that (x) such new Lien shall be limited to all or
part of the same property that secured the original Lien (plus
improvements to or on such property) and (y) the Indebtedness secured
by such Lien at such time is not increased to any amount greater than
the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clause (b), (j),
(l) or (m) at the time the original Lien became a Permitted Lien and
(B) an amount necessary to pay any fees and expenses, including
premiums, related to such Refinancing;
(r) Charters, leases or subleases granted to others in the
ordinary course of business that are subject to the relevant Mortgage
and that do not materially interfere with the ordinary course of
business of Millenium and its Restricted Subsidiaries, taken as a
whole;
(s) (A) Liens in favor of Millenium or any Restricted
Subsidiary, (B) Liens arising from the rendering of a final judgment or
order against such Person that does not give rise to an Event of
Default and (C) Liens securing reimbursement obligations with respect
to letters of credit that encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(t) Liens in favor of customers and revenue authorities
arising as a matter of law to secure payment of custom duties in
connection with the importation of goods;
(u) Liens for salvage;
(v) any Lien or pledge which arises in favor of Parent in the
ordinary course of business in connection with the performance of its
duties and obligations under the Management Agreements as in effect on
the Original Issue Date;
(w) Liens on the Capital Stock of an Unrestricted Subsidiary
to the extent such Liens secure obligations of such Unrestricted
Subsidiary or the Guarantee of Millenium of the obligations of such
Unrestricted Subsidiary; and
(x) Liens securing Indebtedness if the Indebtedness secured by
such Lien, plus all other Indebtedness secured by Liens described in
this clause (x) at the time of determination, does not exceed $1
million; and
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clause (j), (l) or (m) above to the extent such Lien applies to any
Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "--Certain Covenants--Limitation on
Asset Sales." For purposes of this definition, the term "Indebtedness" shall be
deemed to include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited
liability issuer, joint venture, association, joint-stock issuer, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Primary Treasury Dealer" means a primary U.S. Government securities
dealer in New York City.
"principal" of a Note means the Accreted Value of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Public Equity Offering" means an underwritten primary public offering
of common stock of Millenium or Parent pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has
been consummated and (y) at least 15% of the total issued and outstanding common
stock of Millenium or Parent has been distributed by means of an effective
registration statement under the Securities Act or is eligible for distribution
pursuant to Rule 144(k) under the Securities Act.
"Qualified Preferred Stock" of a Restricted Subsidiary means a series
of Preferred Stock of such Restricted Subsidiary which (i) has a fixed
liquidation preference that is no greater in the aggregate than the sum of (x)
the fair market value (as determined in good faith by the
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Board of Directors at
the time of the issuance of such series of Preferred Stock) of the consideration
received by such Restricted Subsidiary for the issuance of such series of
Preferred Stock and (y) accrued and unpaid dividends to the date of liquidation,
(ii) has a fixed annual dividend and has no right to share in any dividend or
other distributions based on the financial or other similar performance of such
Restricted Subsidiary and (iii) does not entitle the holders thereof to vote in
the election of directors, managers or trustees of such Restricted Subsidiary
unless such Restricted Subsidiary has failed to pay dividends on such series of
Preferred Stock for a period of at least 12 consecutive calendar months.
"Qualified Proceeds" means any of the following or any combination of
the following: (i) cash, (ii) Temporary Cash Investments, (iii) assets that are
used or useful in a Shipping Business and (iv) the Capital Stock of any Person
primarily engaged in a Shipping Business if, in connection with the receipt by
Millenium or any Restricted Subsidiary of Millenium of such Capital Stock, (a)
such Person becomes a Restricted Subsidiary of Millenium or of any Restricted
Subsidiary of Millenium or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, Millenium or any Restricted Subsidiary of
Millenium.
"Qualified Restricted Subsidiary" means a Restricted Subsidiary in
which no Affiliate of Millenium (other than another Qualified Restricted
Subsidiary) holds any Investment except through its beneficial ownership of
Capital Stock of Millenium.
"Qualified Substitute Vessel" means in respect of any Mortgaged Vessel
which has been sold or was the subject of an Event of Loss, as of any date, one
or more Vessels, (i) none of which is a Mortgaged Vessel as of such date, (ii)
which will be, upon acquisition thereof, wholly owned by a Wholly Owned
Subsidiary of Millenium, (iii) each of which is registered under the laws of the
Republic of Liberia, the Commonwealth of the Bahamas, Panama, Cyprus, the Cayman
Islands or such other jurisdiction which at the time is generally deemed
acceptable by institutional lenders to the shipping industry, as determined in
good faith by the Board of Directors and (iv) each of which has or which
together have an Appraised Value at the Vessel Tender Date at least equal to (x)
the product of (A) the Vessel Percentage of the Vessel(s) for which it is or
they are being substituted, multiplied by (B) the Accreted Value of the Notes
outstanding on such date, assuming compliance by the applicable Subsidiary
Guarantor with all the terms of the Indenture and the applicable Mortgage or (y)
with respect to a Sold Mortgaged Vessel, if the Loan To Value Ratio (calculated
to include in the numerator thereof the then outstanding amount of Indebtedness
under any working capital facility to the extent such Indebtedness is secured by
a prior Lien on the Mortgaged Vessels) would be less than 0.8 to 1.0 after
giving effect to the disposition of such Sold Mortgaged Vessel and the tender of
one or more Vessels having an Appraised Value at the Vessel Tender Date at least
equal to the lesser of (I) the product calculated under the foregoing clause (x)
and (II) the Appraised Value of such Sold Mortgaged Vessel, then such lesser
amount.
"Reference Treasury Dealers" means each of Credit Suisse First Boston
Corporation, Donaldson Lufkin Jenrette Securities Corporation and their
respective successors; provided, however, that if either of the foregoing shall
cease to be a Primary Treasury Dealer, Millenium shall substitute therefor
another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to any
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New York
City time) on the third business day preceding such redemption date.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Millenium or any Restricted Subsidiary existing on the Original
Issue Date or Incurred in compliance with the Indenture, including Indebtedness
that Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity either (A) no earlier than the
Stated Maturity of the Indebtedness being Refinanced or (B) after the Stated
Maturity of the Notes, (ii) such Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being Refinanced and (iii) such
Refinancing Indebtedness has an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus the amount of up
to six months of accrued and unpaid interest on such Indebtedness and fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of
Millenium or of another Restricted Subsidiary or (y) Indebtedness of Millenium
or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
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"Restricted Payment" with respect to any Person means
(i) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including
any payment in connection with any merger or consolidation involving
such Person) or similar payment to the direct or indirect holders in
their capacity as such of its Capital Stock (other than dividends or
distributions payable solely in its Capital Stock (other than
Disqualified Stock) and dividends or distributions payable solely to
Millenium or a Restricted Subsidiary, and other than pro rata dividends
or other distributions made by a Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent
interest in the case of a Subsidiary that is an entity other than a
corporation)),
(ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of Millenium held by any
Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of Millenium (other than a Restricted Subsidiary), including
the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of Millenium that is not Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition)
or
(iv) the making of any Investment (other than a Permitted
Investment) in any Person.
"Restricted Subsidiary" means the Subsidiary Guarantors and any other
Subsidiary of Millenium that is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby Millenium or a Restricted Subsidiary
transfers such property to a Person and Millenium or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Millenium secured by a
Lien.
"Security Agreements" has the meaning specified in the Indenture and
includes the Collateral Agency Agreement, the Mortgages, the Escrow Agreement,
the Insurance Assignments and the security arrangements specified in the
Indenture and in the Collateral Agency Agreement.
"Senior Indebtedness" of any Person means (i) Indebtedness of such
Person, whether outstanding on the Original Issue Date or thereafter Incurred,
and (ii) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
Person to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of such Person to any subsidiary of such Person, (2)
any liability for Federal, state, local or other taxes owed or owing by such
Person, (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is subordinate or junior
in any respect to any other Indebtedness or other obligation of such Person or
(5) that portion of any Indebtedness which at the time of Incurrence is Incurred
in violation of the Indenture.
"Shipping Business" means the ownership or operation of vessels and any
activities within the ship owning and shipping industries and all businesses
which are complementary, incidental, related or ancillary to any such
activities.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of Millenium within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision
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providing for the repurchase of such security at the option of the holder
thereof upon the happening of any contingency unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of Millenium (whether
outstanding on the Original Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes by its terms or pursuant
to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary of Millenium, whether now
owned or hereafter formed, which (i) owns a Mortgaged Vessel on the Original
Issue Date, (ii) acquires a Vessel with Escrowed Proceeds, (iii) acquires a
Qualified Substitute Vessel, or (iv) shall
execute and deliver a Subsidiary Guarantee.
"Subsidiary Guarantee" means a Guarantee of Millenium's obligations
with respect to the Notes issued by a Subsidiary of Millenium.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof; (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 360 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor; (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above; (iv) investments in commercial paper, maturing not more than six
months after the date of acquisition, issued by a corporation (other than an
Affiliate of Millenium) organized and in existence under the laws of the United
States of America or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made of
"P-2" (or higher) according to Moody's Investors Service, Inc. or "A-2" (or
higher) according to Standard & Poor's Ratings Group; (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc. and (vi) any mutual fund the portfolio of which is
limited to investments of types specified in the preceding clauses (i) through
(v), including any proprietary mutual fund of the Trustee for which such bank or
an affiliate thereof is investment advisor or to which such bank provides other
services and receives reasonable compensation therefor.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Unrestricted Subsidiary" means (i) any Subsidiary of Millenium (other
than a Subsidiary Guarantor) that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors may designate any Subsidiary of Millenium (including any newly
acquired or newly formed Subsidiary (other than a Subsidiary Guarantor)) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
Millenium or any other Restricted Subsidiary; provided, however, that either (A)
the Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) Millenium could incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
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"Vessel" means a bulk carrier owned or leased by Millenium or any
Subsidiary of Millenium.
"Vessel Percentage" means, as of and after the Original Issue Date and
prior to any subsequent adjustment as provided below, for each of the initial
Mortgaged Vessels (including the Committed Vessels) and the Escrowed Proceeds,
the percentage set forth below opposite such Mortgaged Vessel:
Vessel Percentage
------ ----------
(1) Monica Marissa 3.2%
(2) Clipper Harmony 4.5%
(3) Clipper Golden Hind 3.8%
(4) Clipper Pacific 1.5%
(5) Clipper Atlantic 1.4%
(6) Millenium Aleksander 7.6%
(7) Millenium Elmar 7.0%
(8) Millenium Leader 7.0%
(9) Millenium Hawk 6.2%
(10) Millenium Eagle 5.9%
(11) Millenium Osprey 6.2%
(12) Millenium Falcon 4.9%
(13) Millenium Condor 4.9%
(14) Millenium Amethyst 2.6%
(15) Millenium Yama 3.1%
(16) Millenium Majestic 2.7%
Escrowed Proceeds 27.5%
-----
Total 100.0%
provided, however, that each Vessel Percentage shall be adjusted in each case
upon the occurrence of, and after giving effect to, (i) the acquisition of a
vessel with Escrowed Proceeds (other than a Committed Vessel) and the delivery
of a Mortgage with respect to such Vessel, (ii) the delivery of any Qualified
Substitute Vessel as part of the Collateral pursuant to the terms of the
Indenture, (iii) the delivery of any other Vessel as part of the Collateral,
(iv) an Event of Loss with respect to any Mortgaged Vessel, or (v) the sale of
any Mortgaged Vessel (or the termination of any Acquisition Contract in respect
of a Committed Vessel prior to the acquisition thereof by the Company), in each
case effected in accordance with the terms of the Indenture, to be, for each
Vessel that constitutes a Mortgaged Vessel after such an occurrence, the
percentage that the most recently calculated Appraised Value of such Mortgaged
Vessel bears to the sum of such aggregate Appraised Value of the remaining
Mortgaged Vessels and after giving effect to such occurrence plus the amount of
Escrowed Proceeds then remaining as part of the Collateral. Notwithstanding the
foregoing, if any Vessel Percentage is required to be calculated or adjusted at
a time when cash is on deposit with the Trustee as part of the Collateral as a
result of the sale of a Mortgaged Vessel or the occurrence of an Event of Loss
with respect to a Mortgaged Vessel, the amount of such cash on deposit shall be
deemed to be the Appraised Value of such Vessel giving rise to such cash on
deposit and such Vessel shall be deemed to remain a Mortgaged Vessel for
purposes of such computation or adjustment of Vessel Percentage.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or
trustees thereof.
"Warrant Agreement" means the Warrant Agreement, dated as of July 15,
1998, between Millenium and ChaseMellon Shareholder Services, L.L.C., as the
warrant agent.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Millenium
or one or more Wholly Owned Subsidiaries.
"Working Capital Obligations" means all of Millenium's obligations
under the Working Capital Facility Agreement.
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DESCRIPTION OF THE WARRANTS
On the Original Issue Date, Millenium offered 100,000 Units (the
"Units"), each Unit consisting of $1,000 principal amount at maturity of its
Existing Notes and one Warrant to purchase five shares of common stock of
Millenium at an exercise price of $.01 per share. The Warrants were issued
pursuant to a warrant agreement (the "Warrant Agreement"), dated as of July 15,
1998, between Millenium and ChaseMellon Shareholder Services, L.L.C., as warrant
agent (the "Warrant Agent"). A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
DESCRIPTION OF COMMON STOCK
Millenium Common Stock
As of the date of this Prospectus, 9,500,000 shares of Millenium Common
Stock are outstanding and registered in the name of MMI. The following summary
does not purport to be complete and is subject to, and is qualified in its
entirety by, the Certificate of Incorporation and the Memorandum and Articles of
Association of Millenium, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
In relation to all matters submitted to a vote of stockholders, every
holder of Millenium Common Stock who (being an individual) is present in person
or by proxy or (being a corporation) is present by a duly authorized
representative, not being himself a stockholder, shall, on a show of hands, have
one vote and, on a poll, every holder of Millenium Common Stock entitled to vote
shall have one vote for each share registered in his name in the register of
members. Accordingly, the holders of Millenium Common Stock may from time to
time in general meeting increase or reduce the number of directors and may, by
ordinary resolution, remove any director or by ordinary resolution appoint any
person to be a director. On a winding-up of Millenium, a liquidator may with the
sanction of a special resolution of the holders of Millenium Common Stock,
divide among the holders of Millenium Common Stock in specie or kind the whole
or any part of the assets of Millenium and may for such purposes set such value
as he deems fair upon any property to be divided as aforesaid and may determine
how such division shall be carried out as between the holders of Millenium
Common Stock.
There is included in the Articles of Association of Millenium a
provision indemnifying every director or other officer of Millenium out of the
assets of Millenium against losses or liabilities which such director or officer
may sustain or incur in or about the execution of the duties of his office or
otherwise in relation thereto and confirming that no such director or other
officer shall be liable for any loss, damage or misfortune which may happen to
or be incurred by Millenium in the execution of the duties of his office or in
relation thereto.
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BOOK-ENTRY REGISTRATION
The Existing Notes sold to Qualified Institutional Buyers were, and the
Exchange Notes will be, originally issued in fully registered book-entry form,
and each of the Existing Notes and the Exchange Notes will be represented by a
global note (each a "Global Note") registered in the name of Cede & Co. ("Cede")
as the nominee of The Depository Trust Company ("DTC"). All references to
actions by holders shall, in respect of the applicable Global Note, refer to
actions taken by DTC upon instruction from DTC Participants (as defined below),
and all references herein to distributions, notices, reports and statements to
holders shall refer, as the case may be, to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Exchange Notes or to
DTC Participants for distribution to beneficial owners in accordance with DTC
procedures. DTC has advised the Company that DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC accepts securities for
deposit from its participating organizations ("Participants") and facilitates
the clearance and settlement of securities transactions between Participants in
such securities through electronic book-entry changes in accounts of
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
The Company expects that pursuant to procedures established by the DTC,
(i) upon deposit of the applicable Global Note, DTC will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the applicable Global Note and (ii) ownership of the Exchange Notes
evidenced by the applicable Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the interests of DTC's Participants), DTC's Participants and DTC's
Indirect Participants. Consequently, the ability to transfer Existing Notes or
Exchange Notes evidenced by the applicable Global Note will be limited to such
extent.
So long as Cede is the registered owner of any Exchange Notes, Cede
will be considered the sole holder under the Indenture of any Exchange Notes
evidenced by the applicable Global Note. Beneficial owners of Exchange Notes
evidenced by the applicable Global Note will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Indenture Trustee
thereunder. Neither the Company nor the Indenture Trustee will have any
responsibility or liability for any aspect of the records of the DTC or for
maintaining, supervising or reviewing any records of the DTC relating to the
Exchange Notes. Payments in respect of the principal of, premium, if any, and
interest, on any Exchange Notes registered in the name of Cede on the applicable
record date will be payable by the Indenture Trustee to or at the direction of
Cede in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company, and the Trustee may treat the persons in
whose names Exchange Notes including the applicable Global Note, are registered
as the owners thereof for the purpose of receiving such payments. Consequently,
neither the Company or the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Exchange
Notes. The Company believes, however, that it is currently the policy of the DTC
to immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the DTC. Payments
by DTC's Participants and DTC's Indirect Participants to the beneficial owners
of Exchange Notes will be governed by standing instructions and customary
practice and will be the responsibility of DTC's Participants or DTC's Indirect
Participants. Subject to certain conditions, any beneficial owner of the
applicable Global Note may obtain, through the Direct Participant through which
such beneficial owner directly or indirectly holds beneficial interest, a
certificated Exchange Note or Exchange Notes, in exchange for all or part of
such beneficial interest. In addition, the Exchange Notes will be issued in
fully registered, certificated form to beneficial owners, or their nominees,
rather than to DTC or its nominee, if DTC advises the Indenture Trustee in
writing that it is no longer willing or able or qualified to discharge properly
its responsibilities as depository with respect to the Exchange Notes, and the
Company is unable to locate a qualified successor or if the Company elects to
terminate the book-entry system through DTC. In such event, the Indenture
Trustee will notify all beneficial owners through DTC Participants of the
availability of such certificated Exchange Notes. Upon surrender by DTC of the
registered global certificates representing the Exchange Notes and receipt of
instructions for re-registration, the Indenture Trustee will re-issue the
Exchange Notes in certificated form to beneficial owners or their nominees. Such
certificated Exchange Notes will be transferable and exchangeable at the office
of the Indenture Trustee upon compliance with the requirements set forth in the
Indenture.
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THE MORTGAGES
General
Each Subsidiary Guarantor has granted to the Collateral Agent, for the
benefit of the Holders of the Exchange Notes and the Working Capital Facility
Provider, a Mortgage on its Mortgaged Vessel to secure the payment of all sums
of money (whether for principal, premium, if any, interest, fees, expenses or
otherwise) from time to time payable by such Subsidiary under (a) its Subsidiary
Guarantee, the payment of the principal of (and premium, if any) and interest on
the Exchange Notes, the payment of all other sums payable by Millenium under the
Indenture and the payment of all other sums payable under the Security
Agreements (as guaranteed by its Subsidiary Guarantee) and (b) its Working
Capital Guarantee, the payment of all amounts payable by Millenium under the
Working Capital Facility Agreement. The Holders of the Notes and the Working
Capital Facility Provider will have an equal and ratable interest in the
Mortgaged Vessel, subject to the priority of payment described below under
"--Application of Proceeds Following an Event of Default." The Mortgages have
been recorded in accordance with the provisions of Liberian law, Cypriot law,
Bahamian law, Cayman Islands law or Panamanian law as applicable. Each
Subsidiary Guarantee and Working Capital Facility Guarantee is limited in amount
to an amount not to exceed the maximum amount that can be guaranteed by the
applicable Subsidiary Guarantor without rendering the applicable Subsidiary
Guarantee or Working Capital Facility Guarantee voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
Certain Covenants
Each Mortgage contains, among other things, the following covenants:
Registration and Documentation of the Mortgaged Vessel. The
Subsidiary Guarantor will not permit the Mortgaged Vessel to be
operated in any manner contrary to law, will not engage in unlawful
trade or carry any cargo that would expose the Mortgaged Vessel to
penalty, forfeiture or capture, and will not permit to be done anything
which can or may injuriously affect the registration or enrollment of
its Mortgaged Vessel under the laws and regulations of the jurisdiction
in which such Mortgaged Vessel is registered, and will at all times
keep its Mortgaged Vessel duly documented thereunder, except in the
case of any change of registry permitted by the Indenture or the
Mortgage, in which case a Vessel Mortgage will be recorded against such
Vessel under the laws of any such new registry state.
Restriction on Liens. Except for its time charter and the lien
of the Mortgage and certain other permitted liens (including liens
relating to a covered insured incident), the Subsidiary Guarantor will
not suffer to be continued any lien, encumbrance or charge on its
Mortgaged Vessel for longer than 90 days after the same becomes due and
payable and will pay or cause to be discharged or make adequate
provision for the satisfaction or discharge of all claims or demands,
or will cause its Mortgaged Vessel to be released or discharged from
any lien, encumbrance or charge therefor. Notwithstanding the
foregoing, no Subsidiary Guarantor will be permitted to suffer any
lien, encumbrance or charge on its Mortgaged Vessel to secure any
Indebtedness (other than the Existing Notes and the Subsidiary
Guarantees and Indebtedness Incurred under the provision described in
paragraph (b)(1) of the covenant described under "Limitation on
Indebtedness" and in paragraph (6) of the covenant described under
"--Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries").
Maintenance of the Mortgaged Vessel. The Subsidiary Guarantor
will at all times and without cost or expense to the Collateral Agent
maintain and preserve, or cause to be maintained and preserved, its
Mortgaged Vessel in good running order and repair, so that the
Mortgaged Vessel shall be in every respect seaworthy; and will keep the
Mortgaged Vessel, or cause her to be kept, in such condition as will
entitle her to maintain her current classification rating and annually
will furnish the Collateral Agent a certificate by such classification
society confirming that such classification is maintained.
Transfer of Flag or Sale of the Mortgaged Vessel. The
Subsidiary Guarantor will not transfer or change the flag or port of
documentation of its Mortgaged Vessel, except to Cyprus, the Bahamas,
Liberia, Panama, the Cayman Islands, Isle of Man, the Hellenic Republic
or any jurisdiction which at the time is generally deemed acceptable by
institutional lenders to the shipping industry, as determined in good
faith by the Board of Directors, as permitted by the terms of the
Indenture; provided, however, that there shall at all times exist an
effective Mortgage on the applicable Mortgaged Vessel, notwithstanding
such transfer or change of flag or port. Except as permitted by the
terms of the Indenture, no Subsidiary Guarantor will sell, mortgage or
transfer its Mortgaged Vessel.
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Insurance. The Subsidiary Guarantor will at all times and at
its own cost and expense cause to be carried and maintained in respect
of its Mortgaged Vessel insurance payable in United States dollars in
amounts, against risks (including marine hull and machinery insurance,
marine protection and indemnity insurance, war risks insurance and
liability arising out of pollution and the spillage or leakage of cargo
and cargo liability insurance) and in a form that is substantially
equivalent to the coverage carried by other responsible and experienced
companies engaged in the operation of vessels similar to its Mortgaged
Vessel and with insurance companies, underwriters, funds, mutual
insurance associations or clubs of recognized standing. No insurance
will provide for a deductible amount in excess of $1,000,000 per
occurrence.
In the case of all marine and war risk hull and machinery policies, the
Subsidiary Guarantor will cause the Collateral Agent to be named an additional
insured and will use all reasonable efforts (and cause its insurance broker to
use all reasonable efforts) to cause the insurers under such policies to waive
any liability of the Collateral Agent for premiums or calls payable under such
policies. The Subsidiary Guarantor will use all reasonable efforts with its
insurance brokers and underwriters to include a clause to the effect that no
policy is to be cancelable or subject to lapse without at least seven business
days' prior notice to the Collateral Agent.
For purposes of insurance against total loss, each Mortgaged Vessel is
to be insured for an amount not less than its fair value and not less, when
aggregated with the insurance on the other Mortgaged Vessels, than an amount
equal to the aggregate outstanding principal amount of the Exchange Notes,
premium, if any, and accrued and unpaid interest thereon. Unless the Collateral
Agent shall have otherwise directed, any loss involving damage to a Mortgaged
Vessel which is not in excess of $1,000,000 may be paid directly for repair or
salvage or to reimburse the Subsidiary Guarantor for the same.
In the event of an actual, constructive or compromised total loss of
its Mortgaged Vessel, any adjustment or compromise of such loss by the
Subsidiary Guarantor will be at the highest amount reasonably obtainable, and
all insurance or other payments for such loss will be applied as set forth above
under "Description of the Exchange Notes--Redemption."
Events of Default and Remedies
An Event of Default under the Indenture and the Working Capital
Facility Agreement will constitute an event of default under the Mortgages and,
in case any one or more events of default under the Mortgages shall have
occurred and be continuing, then, in each and every such case the Collateral
Agent will have the right to:
(1) declare immediately due and payable all the Obligations
and Working Capital Obligations (in which case all of the same shall be
immediately due), and bring suit at law, in equity or in admiralty, as
it may be advised, to recover judgment for the Obligations and Working
Capital Obligations and collect the same out of any and all property of
the Subsidiary Guarantor whether
covered by the Mortgage or otherwise;
(2) exercise all the rights and remedies in foreclosure and
otherwise given to mortgagees by the provisions of applicable law;
(3) take and enter into possession of the Mortgaged Vessel, at
any time, wherever the same may be, without legal process and without
being responsible for loss or damage, and the Subsidiary Guarantors or
other person in possession forthwith upon demand of the Collateral
Agent will surrender to the Collateral Agent possession of the
Mortgaged Vessel and the Collateral Agent may, without being
responsible for loss or damage, hold, lay-up, lease, charter, operate
or otherwise use such Mortgaged Vessel for such time and upon such
terms as it may deem to be for its best advantage, and demand, collect
and retain all hire, freights, earnings, issues, revenues, income,
profits, return premiums, salvage awards or recoveries in general
average, and all other sums due or to become due in respect of such
Mortgaged Vessel or in respect of any insurance thereon from any person
whomsoever, in accordance with the terms of the Mortgage; and
(4) take and enter into possession of the Mortgaged Vessel, at
any time, wherever the same may be, without legal process, and if it
seems desirable to the Collateral Agent and without being responsible
for loss or damage, sell such Mortgaged Vessel, at any place and at
such time as the Collateral Agent may specify and in any such manner
and such place (whether by public or private sale) as the Collateral
Agent may deem advisable, in accordance with the terms of the Mortgage.
Any sale of a Mortgaged Vessel made in pursuance of the Collateral
Agent's right under the Mortgage will operate to divest all right, title and
interest of any nature whatsoever of the Subsidiary Guarantor therein and
thereto and shall bar any claim from the Subsidiary Guarantor, its successors
and assigns, and all persons claiming by, through or under them.
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All the Mortgaged Vessels owned by Millenium and its Restricted
Subsidiaries on or shortly after the Original Issue Date are registered under
the Liberian, Cypriot, Panamanian, Cayman Islands or Bahamian flag. The Mortgage
on each of the Panamanian flag Mortgaged Vessels will be a preferred mortgage
lien under Panamanian maritime law. The Mortgage on each of the other Mortgaged
Vessels will have similar status under applicable law. The laws of all of such
jurisdictions provide that such Mortgages may be enforced by the mortgagee by
suit in admiralty in a proceeding against the vessel covered by the mortgage.
The priority that such a mortgage would have against the claims of
other lien creditors in an enforcement proceeding is generally determined by,
and will vary in accordance with, the law of the country where the proceeding is
brought.
Panamanian maritime law provides that a "preferred mortgage" is prior
to all claims except (i) costs imposed by the enforcing court, (ii) liens for
damages arising out of tort, (iii) wages of a stevedore earned during the most
recent voyage when employed directly by the owner, operator or master of the
vessel, (iv) wages of the crew of the vessel earned during the most recent
voyage and (v) general average and salvage, including contract salvage.
Panamanian law also provides that unpaid vessel tonnage taxes, annual fees and
penalties imposed by the Panamanian government are liens prior to the liens of
the mortgage.
Bahamian law provides that a first priority ship mortgage has priority
over all other claims except (i) costs allowed by the court arising out of the
arrest and sale proceedings, (ii) wages and other sums due to the master,
officers and other members of the ship's complement in respect of their
employment on the ship, (iii) port, canal and other waterway dues and pilotage
dues and any other outstanding fees payable under the Merchant Shipping Act of
The Bahamas in respect of the ship, (iv) claims against the owner in respect of
loss of life or personal injury occurring, whether on land or on water, in
direct connection with the operation of the ship, (v) claims against the owner,
based on tort and not capable of being based on contract, in respect of loss of
or damage to property occurring, whether on land or on water, in direct
connection with the operation, of the ship, and (vi) claims for salvage, wreck
removal and contribution in general average.
Cayman Islands maritime law provides that the priority of mortgages
between themselves shall be determined by the order in which the mortgages were
registered. Upon entry of a first priority ship mortgage in the Ship Registry,
it will have priority over any other subsequently registered mortgage of or
charge on the relevant vessel. However, a ship mortgage, even if registered,
will rank behind any possessory liens in respect of work done on the vessel and
maritime liens (whether existing before or after the creation of the
mortgage).
Liberian maritime law provides that a "preferred mortgage lien" is
prior to all claims other than the following: (i) liens arising prior in time to
the recording of the preferred mortgage; (ii) liens arising out of tort; (iii)
liens for tonnage taxes and annual fees payable under the Liberian Maritime
Regulations; (iv) liens for crew's wages; (v) liens for general average; (vi)
liens for salvage; and (vii) liens for expenses and fees allowed and costs
imposed by courts of competent jurisdiction.
Cypriot maritime law provides that a "preferred mortgage lien" is prior
to all claims other than the following: (i) maritime liens for damage done by
the vessel; (ii) liens for salvage; (iii) liens or crew's wages; (iv) liens for
master's disbursements; (v) liens for bottomry; and (vii) liens for costs of
arresting parties imposed by courts of competent jurisdiction.
All of such ship mortgages may be enforced against a vessel physically
present in the United States, but the claim under the mortgage would rank behind
preferred maritime liens, including those for supplies and other necessaries
provided in the United States. There is no assurance, however, that if
enforcement proceedings must be commenced against a Mortgaged Vessel, the
Mortgaged Vessel will be located in a jurisdiction having the same procedures
and lien priorities as the United States. Other jurisdictions may provide no
legal remedy at all for the enforcement of the Mortgages, or a remedy dependent
on court proceedings so expensive and time consuming as to be impractical.
Furthermore, certain jurisdictions, unlike the United States, may not permit the
Mortgaged Vessel to be sold prior to entry of a judgment, entailing a long
waiting time that could result in increased custodial costs, deterioration in
the condition of the Mortgaged Vessel and substantial reduction in her value.
As additional security for the Obligations, each Subsidiary Guarantor
will assign to the Trustee, among other things, all its rights under the
Charter, the earnings of its Mortgaged Vessel and the insurance carried thereon.
The assignment of earnings on the vessels will not be notified to charterers
unless an event of default has occurred and is continuing under a mortgage which
is not capable of cure. See "Description of the Exchange Notes--Subsidiary
Guarantees."
Application of Proceeds Following an Event of Default
The Trustee will be the "Senior Representative" under the Collateral
Agency Agreement and will be entitled to direct the Collateral Agent in the
exercise of remedies following an Event of Default; provided, however, that upon
the occurrence of an event of default under
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the Working Capital Facility Agreement and the acceleration of the amounts due
thereunder, the Working Capital Facility Provider shall have the right to notify
the Trustee. If the Trustee fails to instruct the Collateral Agent with respect
to the Vessel Collateral within 90 days, the Working Capital Facility Provider
shall have the right to so instruct the Collateral Agent; provided, however,
that the Trustee may at any time thereafter resume the direction of the
Collateral Agent, so long as the Trustee does not terminate the actions
commenced by the Collateral Agent without the prior written consent of the
Working Capital Facility Provider. Pursuant to the terms of the Collateral
Agency Agreement, the Collateral Agent will distribute all proceeds received by
it following an Event of Default in the following order of priority:
FIRST: to the Working Capital Facility Provider, the Trustee and the
Collateral Agent, pro rata to each of them accordance with the amounts owed, an
amount equal to any accrued and unpaid fees owing under the Working Capital
Facility Agreement, any Trustee and Collateral Agent fees and all reasonable
expenses and charges incurred by or on behalf of the Working Capital Facility
Provider, the Trustee and the Collateral Agent in connection with the
ascertainment or protection of their respective rights and the pursuance of
their respective remedies under the Indenture or the Working Capital Facility
Agreement (including the reasonable fees and expenses of counsel) in each case
as certified in writing to the Collateral Agent by the Lender, the Trustee or
the Collateral Agent, as the case may be;
SECOND: to the Working Capital Facility Provider, an amount, as
certified in writing to the Collateral Agent by the Working Capital Facility
Provider, equal to any amounts owing pursuant to the Working Capital Facility
Agreement with respect to borrowings made thereunder (not to exceed an aggregate
principal amount of $7.0 million), including all accrued and unpaid interest
thereon;
THIRD: to the Trustee for the benefit of the Holders of the Exchange
Notes, an amount, as certified in writing to the Collateral Agent by the
Trustee, equal to any accrued and unpaid interest in respect of the Exchange
Notes then outstanding;
FOURTH: to the Trustee for the benefit of the holders of the Exchange
Notes, an amount, as certified in writing to the Collateral Agent by the
Trustee, equal to the outstanding principal of the Exchange Notes; and
FIFTH: to the related Subsidiary Guarantor, its successors or assigns,
or to whomsoever may be lawfully entitled to receive the same, the excess, if
any.
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DESCRIPTION OF WORKING CAPITAL FACILITY AGREEMENT
Pursuant to a Credit Agreement (the "Working Capital Facility
Agreement"), dated July 20, 1998, among Millenium and The Bank of New York (the
"Working Capital Facility Provider"), the Working Capital Facility Provider has
made available to Millenium a line of credit ("Working Capital Facility") in a
principal amount up to $7,000,000, although no amounts are currently outstanding
under such Working Capital Facility. The Working Capital Facility Agreement
provides that working capital draws (each, a "Working Capital Draw") shall be in
minimum amounts of $250,000 and shall accrue interest at a rate equal to the sum
of (a) LIBOR and (b) 1.5% per annum. The Working Capital Facility matures on the
one-year anniversary of the Original Issue Date. During the second half of the
term of the Working Capital Facility Agreement, for any period of 30 consecutive
days chosen by Millenium, all Working Capital Draws then outstanding must be
repaid by Millenium. Millenium will be required to pay to the Working Capital
Facility Provider (a) an up front fee equal to $35,000 and (b) a commitment fee
equal to 0.375% per annum on the unused portion of the Working Capital Facility,
payable quarterly in arrears commencing on October 20, 1998. The obligations of
Millenium under the Working Capital Facility Agreement are guaranteed by each of
the Subsidiary Guarantors pursuant to a guarantee (each, a "Working Capital
Guarantee") and are secured by the Mortgaged Vessels, together with the
insurances thereon (the "Vessel Collateral").
The Working Capital Facility Agreement contains representations and
warranties similar to those contained in the Purchase Agreement (as defined),
and will incorporate by reference, for the benefit of the Working Capital
Facility Provider, each of the covenants contained in the Indenture. The
following events, among others, will constitute events of default under the
Working Capital Facility Agreement unless waived by the Working Capital Facility
Provider: (i) Millenium fails to pay the Working Capital Facility Provider when
due any amounts drawn under the Working Capital Facility Agreement, any interest
thereon or any fees due under the Working Capital Facility Agreement, (ii)
Millenium or any of the Subsidiary Guarantors fails to observe or perform any
other covenant, agreement or restriction contained or incorporated by reference
in the Working Capital Facility Agreement, and, in certain cases, applicable
grace periods expire, (iii) any representation, warranty, certification or
statement made by Millenium or any of the Subsidiary Guarantors in the Working
Capital Facility Agreement or in any certificate, financial statement or other
document delivered pursuant thereto proves to have been incorrect in any
material respect when made and (iv) certain events of bankruptcy or insolvency
of Millenium or any of the Subsidiary Guarantors. Upon the occurrence of an
event of default under the Working Capital Facility Agreement and the
acceleration of the amounts due thereunder, the Working Capital Facility
Provider shall have the right to notify the Trustee. If the Trustee fails to
instruct the Collateral Agent with respect to the Vessel Collateral within 90
days, the Working Capital Facility Provider shall have the right to so instruct
the Collateral Agent; provided, however, that the Trustee may at any time
thereafter resume the direction of the Collateral Agent, so long as the Trustee
does not terminate the actions commenced by the Collateral Agent without the
prior written consent of the Working Capital Facility Provider. Proceeds from
the Vessel Collateral will be applied pursuant to the priority of payment
indicated under "The Mortgages--Application of Proceeds following an Event of
Default."
The Working Capital Facility Agreement provides that to the extent a
Mortgaged Vessel is a Sold Vessel or a Lost Vessel and the Net Available Cash
relating to the Sold Vessel or the Event of Loss Proceeds relating to a Lost
Vessel are required to be used to redeem Exchange Notes pursuant to the terms of
the Indenture (see "Description of the Exchange Notes--Redemptions--Redemption
upon Sale or Loss of a Mortgaged Vessel"), then Millenium shall be required to
repay the Working Capital Facility in an amount equal to the sum of (i) the
product of (a) the Vessel Percentage applicable to the Sold Mortgage Vessel as
of the Sale Date of the Lost Mortgaged Vessel as of the Loss Date, as the case
may be, and (b) the aggregate principal amount of all Working Capital Draws then
outstanding and (ii) all accrued and unpaid interest thereon.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Exchange Offer
In the opinion of Thacher Proffitt & Wood, counsel to the Company, the
following disclosure summarizes the material federal income tax consequences
under the Internal Revenue Code of 1986 (the "Code") expected to result to
Holders whose Existing Notes are exchanged for Exchange Notes in the Exchange
Offer. This discussion has been prepared with the advice of Thacher Proffitt &
Wood, counsel to the Company, and is based upon the provisions of the Code, the
Treasury regulations thereunder, and published rulings and court decisions in
effect as of the date of this Prospectus, all of which authorities are subject
to change or differing interpretations, which could apply retroactively. The
disclosure below does not purport to deal with federal income tax consequences
applicable to all categories of investors and is directed solely to holders that
hold the Notes as capital assets within the meaning of Section 1221 of the Code,
and acquire such Notes for investment and not as a dealer or for resale. This
disclosure is not intended to address every aspect of the United States federal
income tax laws that may be relevant to a holder in light of its particular
investment circumstances or to certain types of holders subject to special
treatment under the federal income tax laws, such as banks, insurance companies,
holders that will hold the Notes as a position in a "straddle" for tax purposes
or as a part of a "synthetic security" or "conversion transaction" or other
integrated investment comprised of the Notes and one or more other investments,
a holder who owns or will own directly, indirectly or by attribution (including
stock attribution resulting from ownership of the Warrants) 10.0% or more (by
voting power) of Millenium Common Stock or holders that have a functional
currency other than the United States dollar. Prospective investors should note
that no rulings have been or will be sought from the Internal Revenue Service
(the "IRS") with respect to any of the federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions. All investors also should consult their own tax advisors in
determining the tax consequences to them of an investment in the Notes and the
purchase, ownership and disposition thereof.
Holders and preparers of tax returns should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice is (i) given
with respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and (ii)
directly relevant to the determination of an entry on a tax return. Accordingly,
a holder should consult its own tax advisors and tax return preparers regarding
the preparation of any item on a tax return.
The exchange of Existing Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Existing Notes. As
a result, no material federal income tax consequences will result to a Holder
exchanging Existing Notes for Exchange Notes.
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CERTAIN FOREIGN TAX CONSIDERATIONS
Cayman Islands Tax Considerations
Millenium and Cayman Islands Subsidiary Guarantors. Millenium and each
Subsidiary Guarantor incorporated in the Cayman Islands (such Subsidiary
Guarantors, collectively, the "Cayman Islands Guarantors") has been incorporated
as an exempted company under the laws of the Cayman Islands and has received an
undertaking from the Governor in Council of the Cayman Islands under Section 6
of The Tax Concessions Law (1995 Revision) that for a period of twenty years
from the date of the undertaking (a) no Law which is hereafter enacted in the
Cayman Islands imposing any tax to be levied on profits, income, gains or
appreciation shall apply to Millenium or the relevant Cayman Island Guarantor or
their respective operations; and (b) that no tax to be levied on profits,
income, gains, or appreciations or which is the nature of estate duty or
inheritance tax shall be payable by Millenium or the relevant Cayman Islands
Guarantor (i) on or in respect of its respective shares, debentures or other
obligations; or (ii) by way of the withholding in whole or in part of any
relevant payment as defined in Section 6(3) of the Tax Concessions Law (1995
Revision).
The Cayman Islands does not have an income tax treaty arrangement with
the United States or any other country.
Investors. There is no income tax, corporation tax, capital gains tax,
withholding tax or any other kind of tax on profits or gains or tax in the
nature of estate duty or inheritance tax currently in effect in the Cayman
Islands. Holders who bring individual Exchange Notes in original form to the
Cayman Islands may be liable to pay stamp duty in an amount of up to C.I.$250 on
each Exchange Notes.
Liberian Tax Considerations
Based on the advice of the Law Offices of Basil T. Patkos, special
Liberian counsel to each Subsidiary Guarantor that is incorporated in Liberia
(collectively, the "Liberian Guarantors"), no taxes or withholding will be
imposed by the Republic of Liberia on or with respect to any payments to be made
in respect of the Exchange Notes or the Subsidiary Guarantees made by each of
the Liberian Guarantors, provided that (i) each of the Liberian Guarantors is
and maintains its status as a "nonresident Liberian entity" under the Liberian
Internal Revenue Code, (ii) each of the Liberian Guarantors is not now carrying
on, and in the future does not expect to carry on, any operations within the
Republic of Liberia, (iii) the Exchange Notes and all related documentation will
be executed outside of the Republic of Liberia and (iv) the holders of the
Exchange Notes will neither reside in, maintain offices in, nor engage in
business in, the Republic of Liberia.
Cypriot Tax Considerations
Based on the advice of Andreas Demetriades Law Office, special Cypriot
counsel to each Subsidiary Guarantor that is incorporated in the Republic of
Cyprus (collectively, the "Cypriot Guarantors"), no taxes or withholding will be
imposed by the Republic of Cyprus on or with respect to any payments to be made
in respect of the Exchange Notes or the Subsidiary Guarantees made by each of
the Cypriot Guarantors, provided that (i) each of the Subsidiary Guarantors is
and maintains its status as a shipping company of limited liability under the
Cyprus Merchant Shipping (Fees and Taxing Provisions) Law No. 38(1)(92), (ii)
the Company and each of the Subsidiary Guarantors is not now carrying on, and in
the future is not expected to carry on, any operations exclusively within the
Republic of Cyprus, (iii) the Exchange Notes and all related documentation will
be executed outside the Republic of Cyprus and (iv) the Holders of the Exchange
Notes will neither reside in, maintain offices in, nor engage in business in,
the Republic of Cyprus.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 199 , all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Exchange Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
RATING
Moody's has rated the Existing Notes B3 and Standard & Poor's has rated
the Existing Notes B. The Company does not intend to request a rating for the
Exchange Notes. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The ratings
of the Rating Agencies assigned to the Existing Notes address the likelihood of
the receipt by Holders of the Existing Notes of all distributions to which such
Holders are entitled. The ratings assigned to the Existing Notes do not
represent any assessment of the likelihood that principal prepayments might
differ from those originally anticipated or address the possibility that Holders
might suffer a lower than anticipated yield. In the event that the rating
initially assigned to any of the Existing Notes is subsequently lowered for any
reason, no person or entity is obligated to provide any additional support or
credit enhancement with respect to such Note. The ratings do not address the
possibility that Holders of the Existing Notes may suffer a lower than
anticipated yield.
The Company has not requested a rating on the Existing Notes by any
rating agencies other than the Rating Agencies. However, there can be no
assurance as to whether any other rating agency will rate the Existing Notes,
or, if it does, what rating would be assigned by any such other rating agency. A
rating on the Existing Notes by another rating agency, if assigned at all, may
be lower than the ratings assigned to the Note by the Rating Agencies.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Thacher Proffitt & Wood, New York, New
York, with respect to matters of United States law and Liberian maritime law, by
Maples and Calder, Grand Cayman, Cayman Islands, with respect to matters of
Cayman Islands law, by the Law Offices of Basil T. Patkos with respect to
matters of Liberian tax law and Andreas P. Demetriades & Associates with respect
to matters of Cypriot law.
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INDEPENDENT PUBLIC ACCOUNTANTS
The combined balance sheets as of December 31, 1996 and 1997, and the
combined statements of income, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1997 included in this
Prospectus, have been included herein in reliance upon the report of Coopers &
Lybrand, independent accountants, given on the authority of that firm as experts
in accounting and
auditing.
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Appendix A: Glossary of Certain Shipping Terms
Ballast A vessel is said to be in "ballast" when it is
steaming without cargo and carrying water as
ballast which is discharged before loading at the
next loading port.
Bareboat Charter Also known as a "demise charter." Contract or hire
of a ship which the shipowner is usually paid a
fixed amount of charter hire for a certain period
of time during which the charterer is responsible
for the operating costs and voyage costs of the
ship as well as arranging for crewing.
Bunkers Heavy fuel oil used to power a vessel's engines.
Charter The hire of a ship for a specified period of time
or to carry a cargo for a fixed fee from a loading
port to a discharging port. The contract for a
charter is called a charterparty.
Charterer The individual or company which charters a ship.
Charter hire A sum of money paid to the shipowner by a
charterer under a time charterparty for the use of
a vessel.
Classification Society A private organization which has as its purpose
the supervision of vessels during their
construction and afterward, in respect of their
seaworthiness and upkeep, and the placing of
vessels in "classes" according to the society's
rules for each particular type of vessel.
Draft Vertical distance between the waterline and the
vessel's keel.
Drydocking The removal of a vessel from the water for
inspection and/or repair of submerged parts.
Dwt Deadweight ton: the maximum weight of cargo and
supplies that can be carried by a ship, expressed
in metric tons.
Gross Ton Unit of 100 cubic feet or 2.831 cubic meters used
in arriving at the calculation of gross tonnage.
Lay-up Mooring a ship at a protected anchorage, shutting
down substantially all of its operating systems
and taking measures to protect against corrosion
and other deterioration.
Lightweight The weight of steel contained in a vessel,
expressed in metric tonnes.
Metric Ton A metric ton of 1,000 kilograms.
Newbuilding A newly constructed vessel.
Orderbook A reference to currently placed orders for the
construction of vessels.
Period Charter A reference to currently placed orders for the
construction of vessels. A time or bareboat
charter for a specified period of time in excess
of six months.
Protection and
Indemnity Insurance Insurance obtained through a mutual association
formed by shipowners to provide liability
insurance protection from large financial loss to
one member through contributions towards that loss
by all members.
Spot Market The market for immediate chartering of a vessel
usually for single voyages.
Time Charter Contract for hire of a ship. A charter under which
the shipowner is paid charter hire on a per day
basis for a certain period of time, the shipowner
being responsible for providing the crew and
-112-
<PAGE>
paying operating costs while the charterer is
responsible for paying the voyage costs. Any
delays at port or during the voyages are the
responsibility of the charterer, save for certain
specific exceptions such as loss of time arising
from vessel breakdown and routine maintenance.
Voyage Charter Contract for hire of a ship under which the
shipowner is paid freight at a price per metric
ton on the basis of moving cargo from a loading
port to a discharge port. The shipowner is
responsible for paying both operating costs and
voyage costs. The charterer is typically
responsible for any delay at the loading or
discharging ports.
-113-
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC
Index to Combined Financial Statements
<S> <C>
Audit Report of Independent Accountants...............................................................................F-2
Review Report of Independent Accountants..............................................................................F-3
Combined Balance Sheets as of December 31, 1996 and 1997 and as of
March 31, 1998 (unaudited)..........................................................................................F-4
Combined Statements of Income for the years ended December 31, 1995,
1996 and 1997 and for the three month period ended March 31, 1997 and 1998
(unaudited).........................................................................................................F-5
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and for the three month period ended March 31, 1997 and 1998
(unaudited).........................................................................................................F-6
Combined Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and for the three month period
ended March 31, 1998 (unaudited)....................................................................................F-7
Notes to the Combined Financial Statements............................................................................F-8
Consolidated Balance Sheets as of September 30, 1998 (unaudited).....................................................F-18
Consolidated Statement of Income for the period ended September 30, 1998
(unaudited)........................................................................................................F-19
Consolidated Statement of Cash Flows for the period ended September 30, 1998
(unaudited)........................................................................................................F-20
Consolidated Statement of Shareholders' Equity for the period
ended September 30, 1998 (unaudited)...............................................................................F-21
Notes to the Consolidated Financial Statements.......................................................................F-22
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Group of Shipping Companies
acquired by Millenium Seacarriers, Inc.
We have audited the accompanying combined balance sheets of Group of
Shipping Companies acquired by Millenium Seacarriers, Inc. as of December 31,
1996 and 1997 and the related combined statements of income, cash flows and
shareholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the group's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Group of Shipping Companies acquired by Millenium Seacarriers, Inc. as of
December 31, 1996 and 1997 and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997 in conformity with United States generally accepted accounting principles.
COOPERS & LYBRAND
Piraeus, Greece
April 13, 1998
except as to Note 11
for which the date is
July 24, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Group of Shipping Companiesacquired by
Millenium Seacarriers, Inc.
We have reviewed the accompanying interim combined balance sheet of
Group of Shipping Companies acquired by Millenium Seacarriers, Inc. as of March
31, 1998 and the related combined statements of income, cash flows and
shareholders' equity for the three-month period then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements referred to above
for them to be in conformity with United States generally accepted accounting
principles.
COOPERS & LYBRAND
Piraeus, Greece
July 15, 1998
except as to Note 11
for which the date
is July 24, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Combined Balance Sheets
(Expressed in US Dollars in Thousands)
December 31, March 31,
----------------------------------------- ------------------
ASSETS 1996 1997 1998
-------------------- ------------------- ------------------
(unaudited)
-----------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents.............................................. $ 15 $ 135 $ 23
Cash retention accounts................................................ 222 193 232
------- ------- -------
237 328 255
Receivables: Claims & other (Note 3) 107 27 137
Inventories and prepaid expenses (Note 4) 110 68 201
Due from related party (Note 8) 573 722 1,008
------- ------- -------
Total current assets........................................ 1,027 1,145 1,601
Deferred charges, net of accumulated amortization (Note 2) 153 649 763
Vessels at cost, net of accumulated depreciation (Note 5) 17,814 15,447 14,855
------ ------ ------
Total assets................................................ $18,994 17,241 17,219
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable................................................. $ 972 $ 2,315 $ 2,359
Other Liabilities (Note 6)............................................. 736 785 959
Charter revenue received in advance.................................... 189 190 82
------- ------- ------
1,897 3,290 3,400
Long-term debt current portion (Note 7) 3,664 3,441 3,775
------- ------- ------
Total current liabilities................................... 5,561 6,731 7,175
Long-term debt, net of current portion (Note 7) 11,919 9,515 9,053
------- ------- ------
Total liabilities........................................... 17,480 16,246 16,228
------- ------- ------
Commitments and contingencies (Note 7 and 10)
Shareholders' equity
Common stock and paid-in capital....................................... 880 880 880
Retained earnings...................................................... 634 115 111
------- ------- -------
Total shareholders' equity.................................. 1,514 995 991
------- ------- -------
Total liabilities and shareholders' equity.................. 18,994 17,241 17,219
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Combined Statements of Income
(Expressed in US Dollars in Thousands, Except Per Share Amounts)
Three Month
Period Ended
Year Ended December 31, March 31, (unaudited)
----------------------- ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES
Freight and hire from voyages........................ $ 4,904 $10,879 %11,285 $ 2,893 $ 2,743
Voyage expenses...................................... (8) (4) (172) (17) (2)
Commissions.......................................... (263) (508) (595) (162) (145)
------- ------- ------- ------- -------
Net revenue..................................... 4,633 10,367 10,518 2,714 2,596
------- ------- ------- ------- -------
EXPENSES
Vessel operating expenses............................ 2,548 5,439 6,204 1,491 1,407
Management fees (Note 8)............................. 221 728 896 223 223
Depreciation and amortization (Note 2)............... 1,173 2,134 2,606 592 683
------- ------- ------- ------- -------
3,942 8,301 9,706 2,306 2,313
------- ------- ------- ------- -------
Operating income................................ 691 2,066 812 408 283
------- ------- ------- ------- -------
OTHER INCOME/(EXPENSES)
Interest expense, net (Note 7)....................... (690) (1,159) (1,215) (301) (274)
Other................................................ (31) (234) (116) (10) (13)
------- ------- ------- ------- -------
(721) (1,393) (1,331) (311) (287)
------- ------- ------- ------- -------
Net income/(loss)............................... (30) 673 (519) 97 (4)
======= ======= ======= ======= =======
PROFORMA EARNINGS (LOSS) PER
SHARE
Basic................................................ $ -- $ 0.07 $ (0.05) $ 0.01 $ --
======= ======= ======= ======= =======
Fully diluted........................................ $ -- $ 0.07 $ (0.05) $ 0.01 $ --
======= ======= ======= ======= =======
PROFORMA NUMBER OF ORDINARY
SHARES (thousands)
Basic................................................ 9,500 9,500 9,500 9,500 9,500
======= ======= ======= ======= =======
Fully diluted........................................ 9,500 9,998 9,500 9,998 9,500
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Combined Statements of Cash Flows
(Expressed in US Dollars in Thousands)
Three Month
Period Ended
Year Ended December 31, March 31, (unaudited)
----------------------- ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................... $ (30) $ 673 $ (519) $ 97 $ (4)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation......................................................... 1,099 2,034 $2,367 592 592
Amortization of deferred charges..................................... 74 100 239 47 91
Changes in operating assets and liabilities:
Receivables: Claims & other.......................................... (30) (64) 80 87 (110)
Inventories and prepaid expenses..................................... (40) (12) 42 91 (133)
Current account with managing agent.................................. (344) 44 (149) 12 (286)
Trade accounts payable............................................... 229 579 1,343 426 44
Other liabilities.................................................... 350 87 49 (73) 174
Charter revenue received in advance.................................. 90 78 1 (57) (108)
----- ------ ------ ------ ------
Net cash provided by operating activities............................ 1,398 3,519 3,453 1,222 260
----- ------ ------ ------ ------
Cash flows from investing activities:
Purchase of vessels.................................................. (5,800) (10,402) - - -
Deferred charges..................................................... - (200) (735) (325) (205)
----- ------ ------ ------ ------
Net cash used in investing activities................................ (5,800) (10,602) (735) (325) (205)
----- ------ ------ ------ ------
Cash flows from financing activities:
Proceeds from long term debt......................................... 5,333 12,800 5,400 - 400
Dividends Paid....................................................... - (335) - - -
Shareholders' contribution, net...................................... 334 542 - - -
Principal repayments of long- term debt.............................. (1,265) (5,687) (8,027) (892) (528)
------ ------ ------ ------ ------
Net cash provided by (used in) financing activities.................. 4,402 7,320 (2,627) (892) (128)
Increase in cash and cash equivalents and retention
accounts........................................................... - 237 91 5 (73)
------ ------ ------ ------ ------
Cash and cash equivalents and retention account at beginning
of year........................................................... - - 237 237 328
------ ------ ------ ------ ------
Cash and cash equivalents and retention account at
end of year........................................................ $ - $ 237 $ 328 $ 243 $ 255
====== ====== ====== ====== ======
Supplemental cash flow information:
Interest paid $ 552 $1,184 $1,236 $ 305 $ 154
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Combined Statements of Shareholders' Equity
(Expressed in US Dollars In Thousands)
Common Stock
and Retained
Paid-in Earnings
Capital /(Deficit) Total
------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1994......................................... $ 4 $ 326 $ 330
Net loss........................................................... -- (30) (30)
Contributions...................................................... 334 -- 334
------ ------ ------
Balance, December 31, 1995......................................... 338 296 634
Net income......................................................... -- 673 673
Contributions and (distributions).................................. 542 (335) 207
------ ------ ------
Balance, December 31, 1996......................................... 880 634 1,514
Net loss........................................................... -- (519) (519)
Balance, December 31, 1997......................................... 880 115 995
Net loss........................................................... -- (4) (4)
------ ------ ------
Balance, March 31, 1998 (unaudited)................................ $ 880 $ 111 $ 991
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements
(Expressed in US Dollars In Thousands)
1. Business Information
Group of Shipping Companies consists of five shipowning companies
listed in note 5, collectively referred to as the "Group." All these companies
have common shareholders and are under the exclusive management of Kylco
Maritime Ltd. a related company. The Group's drybulk vessels operate worldwide
carrying cargoes for many of the world's leading charters.
On March 10, 1998, Millenium Seacarriers, Inc. ("Millenium") was formed
to hold all the capital stock of the Group (collectively, the "Company"). Upon
consummation of the Units Placement and the new equity contribution (the
"Reorganization") (see note 11), the existing vessels of the Group were acquired
by Millenium at fair market value which is approximately $16.5 million. The fair
market value was determined by the average of two appraisals in February 1998,
each performed by an independent shipbroker.
Millenium is registered and incorporated in the Cayman Islands. Its
principal business is the acquiring, upgrading and operating of vessels.
Millenium will conduct its operations through its subsidiaries whose principal
activity is the operation and ownership of drybulk vessels that will be under
the exclusive management of Millenium Management, Inc. ("MMI") and
sub-management of Kylco Maritime Ltd. and Kylco Maritime (USA), Inc. (see Note
8).
2. Summary of Significant Accounting Policies
Basis of Preparation of the Combined Financial Statements
The accompanying combined financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
The companies comprising the Group have common shareholders. All intercompany
balances and transactions have been eliminated upon combination.
Use of Estimates
The preparation of the combined financial statements are in conformity
with accounting principles generally accepted in the United States and requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosures of contingent assets and liabilities at
the date of the combined financial statements, and the stated amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Acquisitions and Disposals
The operating results of vessels acquired or disposed of during the
period or year are included in the accompanying combined financial statements
from the date of their acquisition until the date of their disposal, as
applicable.
Vessels
Vessels owned by the Group are stated at cost which comprises the
vessels' contract price, major repairs and improvements, direct delivery and
acquisition expenses, and finance charges relating to the acquisition of the
vessel.
Depreciation
Depreciation is calculated on a straight line basis by reference to the
vessels' cost, age and scrap value as estimated at the date of acquisition.
Depreciation is calculated over the remaining useful life of the vessel, which
is assumed to be 23 to 28 years from the vessel's original construction.
F-8
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
Revenue and Expense Recognition
Revenue and expenses resulting from each voyage or time charter are
accounted for on the accrual basis and are recognized in the income statement on
the percentage of completed voyage basis. Chartered revenues received in advance
are recorded as a liability until charter services are rendered.
Vessels' operating expenses comprise all expenses relating to the
operation of the vessels, including crewing, repairs and maintenance,
insurances, stores and lubricants, and miscellaneous expenses, including
communications. Voyage expenses comprise all expenses relating to particular
voyages, including bunkers, port charges, canal tolls and agency fees.
Concentration of Credit Risk
The Group derived $4,904, $7,759, $8,124 and $2,023 of freight and hire
revenues from one customer related to the charter of M/V Clipper Atlantic, M/V
Clipper Pacific, M/V Clipper Golden Hind and M/V Clipper Harmony for the years
ended December 31, 1995, 1996 and 1997, and the three-month period ended March
31, 1998 (unaudited), respectively.
Foreign Currencies
The Group's functional currency is U.S. dollar. Assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at exchange
rates prevailing at the balance sheet date. Income and expenses denominated in
foreign currencies are translated into U.S. dollars at exchange rates prevailing
at the date of the transaction. Resulting exchange gains and/or losses on
settlement or translation are included in operating expenses in the accompanying
combined statement of income.
Repairs, Maintenance and Deferred Charges
Expenditures for vessel repair and maintenance are charged against
income in the period incurred. Drydocking and special survey costs are deferred
and amortized over the estimated period to the next scheduled drydocking or
survey, which are generally, two and a half years and five years, respectively.
The amortization of drydocking and special survey costs are included in
operating expenses and totaled $75, $100, $239 in 1995, 1996 and 1997,
respectively.
For the three-month periods ended March 31, 1997 and 1998, the
amortization of drydocking and special survey cost amounted to $47 and $91,
respectively (unaudited).
P&I Back Calls
The Group participates in a Protection and Indemnity (P&I) insurance
coverage plan provided by mutual insurance societies known as P&I clubs. Under
the terms of the plan, participants may be required to pay additional premiums
to fund operating deficits incurred by the clubs ("back calls"). Obligations for
back calls are accrued annually.
Cash and Equivalents
The Group considers time deposits or other certificates purchased with
an original maturity of three months or less to be cash equivalents. Cash
retention accounts are restricted for use as general working capital unless such
balances exceed instalment payments due to the vessels lenders.
F-9
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
Inventories
Inventories consist of lubricants on board the Group's vessels at the
balance sheet date. Inventories are stated at lower of cost or market value.
Cost is determined on a first-in, first-out method.
Long-lived Assets
The Group has adopted the provision of Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-lived
Assets to Be Disposed Of. The statement requires that long-lived assets used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recovered. An impairment loss for an asset held for use should be recognized
when the estimate of non-discounted future net cash flows, excluding interest
charges, expected to be generated by the use of the asset is less than its
carrying amount. Measurement of impairment loss is based on the fair market
value of the asset (Note 5).
Pro forma basic and diluted earnings (loss) per ordinary share
Pro forma basic and diluted earnings per ordinary share have been
computed by dividing net income (loss) by the applicable number of pro forma
ordinary shares expected to be outstanding following the finalization of the
Units Placements of the Company (See Note
11).
Newly issued pronouncements
SFAS No. 130, Reporting Comprehensive Income, has been issued and is
effective for fiscal years beginning after December 15, 1997. The new standard
requires that comprehensive income and its components, as defined, be reported
in the financial statements. This standard does not require that comprehensive
income and its components be reported in an income statement. Early adoption is
encouraged. Management is currently assessing the impact of this standard.
SFAS No. 131, Disclosures about Segments of Enterprise and Related
Information, has been issued and is effective for fiscal periods beginning after
December 15, 1997. This standard specifies revised guidelines for determining an
entity's operating segments and the type and level of information to be
disclosed. Early adoption of this standard is encouraged. Management is
currently assessing the impact of this standard.
SFAS No. 132, Employer's Disclosures about Pensions and Other
Post-retirement Benefits, has been issued and is effective for fiscal periods
beginning after December 15, 1997. This standard revised employers' disclosure
about pension and other post-retirement benefit plans by (1) standardising
disclosure requirements, (2) requiring additional information on changes in the
benefit obligations and fair values of plan assets and (3) eliminating certain
disclosures that are no longer useful as stated in previously issued Standards.
Early adoption of this standard is encouraged. Management does not believe that
this standard is expected to have a material impact on the financial statements
of the Company.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, has been issued and is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS No. 133 requires that all derivatives
be recognized in the statement of financial position as either assets or
liabilities and be measured at fair value. The impact of adopting this statement
is not expected to be material to the Company's financial position as the
Company does not have any derivative instruments or hedging activities.
3. Receivables Claims and Other
These represent claims arising from hull and machinery damages or other
insured risks which have been submitted to insurance adjusters or are currently
being compiled. All amounts are shown net of applicable deductibles.
F-10
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
4. Inventories and Prepaid Expenses
December 31, March 31,
1996 1997 1998
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Lubricants $ 92 $62 $ --
Prepaid Expenses 18 6 201
--- --- ----
$110 $68 $201
==== === ====
</TABLE>
<TABLE>
<CAPTION>
5. Vessels and Vessel Owning Subsidiaries
Accumulated Net Book
Cost Depreciation Value
---- ------------ -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 6,148 $(1,402) $ 4,746
Additions/provision for depreciation 5,799 (1,099) 4,700
------- ------- -------
Balance, December 31, 1995 11,947 (2,501) 9,446
Additions/provision for depreciation 10,402 (2,034) 8,368
------- ------- -------
Balance, December 31, 1996 22,349 (4,535) 17,814
Additions/provision for depreciation (2,367) (2,367)
------- ------- -------
Balance, December 31, 1997 22,349 (6,902) 15,477
Additions/provision for depreciation -- (592) (592)
------- ------- -------
Balance, March 31, 1998 (unaudited) $22,349 $(7,494) $14,855
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Acquisitions
- - - - - - ------------
Period Ending Vessel Type Built DWT Cost
- - - - - - ------------- ------ ---- ----- --- ----
<S> <C> <C> <C> <C> <C>
December 31, 1995 M/V Clipper Golden Hind Dry Bulk Carrier 1978 16,560 $ 5,799
=======
December 31, 1996 M/V Monica Marissa Dry Bulk Carrier 1973 55,060 $ 4,588
M/V Clipper Harmony Dry Bulk Carrier 1978 16,711 5,814
-------
$10,402
=======
</TABLE>
At December 31, 1997 and March 31, 1998, the Group's fleet consisted of
Bulk Carriers which are wholly owned by Vessel Owning Subsidiaries.
<TABLE>
<CAPTION>
Vessel Owning Subsidiaries Name Vessels Type Year Built
- - - - - - -------------------------- ---- ------------ ----------
<S> <C> <C> <C>
Conifer Shipping Co. Ltd M/V Clipper Atlantic Dry Bulk Carrier 1975
Topscale Shipping Co. Ltd M/V Clipper Pacific Dry Bulk Carrier 1976
Ivy Navigation Ltd M/V Clipper Golden Hind Dry Bulk Carrier 1978
Oakmont Shipping & Trading Ltd M/V Monica Marissa Dry Bulk Carrier 1973
Rapid Ocean Carriers Inc M/V Clipper Harmony Dry Bulk Carrier 1978
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
6. Other Liabilities
December 31, March 31,
1996 1997 1998
---- ---- -----------
(unaudited)
<S> <C> <C> <C>
Payroll....................................................... $328 $391 $469
Accrued interest.............................................. 236 215 335
Accrued expenses.............................................. 172 179 155
--- --- ---
736 785 959
=== === ===
</TABLE>
7. Long-term Debt
(a) Long-term debt as of December 31, 1997 comprises of bank loans
granted to the Vessel Owning Subsidiaries. Such loans are detailed as follows:
<TABLE>
<CAPTION>
December 31 March 31,
----------- ---------
Lender 1996 1997 1998
------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
1 Bank of Scotland................................ $ 1,483 $ 1,050 $ 942
2 Bank of Scotland................................ 3,400 2,600 2,400
3 Bank of Scotland................................ 1,431 1,363
4 Bank of Scotland................................ -- -- 400
5 First National Bank of Maryland................. 883 250 250
6 First National Bank of Maryland................. 4,857 3,450 3,450
7 Nations Credit Commercial Corporation........... 4,221 3,709 3,624
8 Bank of Butterfield............................. 250 250 250
9 Clipper Shipping Ltd............................ 406 133 66
10 Drake Associates LP............................. 83 83 83
------- ------- -------
Total........................................... 15,583 12,956 12,828
Current Portion................................. (3,664) (3,441) (3,775)
------- ------- -------
Long-term Portion............................... $11,919 $ 9,515 $ 9,053
======= ======= =======
</TABLE>
F-12
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
(b) The payments required to be made on the long-term debts outstanding
as of December 31, 1997 are as follows:
1. Bank of Scotland: Term loan bearing interest at 1.5% per annum over
LIBOR payable in six quarterly instalments of $108 each plus a balloon payment
of $400 due in July, 1999. The loan is collateralized by a first preferred
mortgage on the vessel M/V Clipper Atlantic
2. Bank of Scotland: Term loan bearing interest at 1.5% per annum over
LIBOR payable in nine quarterly instalments of $200 for the first five payments
and $150 for the remaining four payments and a balloon payment of $1,000 due
with the last instalment in February 2000. The loan is collateralized by a first
preferred mortgage on the vessel M/V Monica Marissa.
3. Bank of Scotland: Term loan bearing interest of 1.5% per annum over
LIBOR payable in fifteen quarterly instalments of $68.75 each plus a balloon
payment of $400 due with the last instalment in July 2001. The loan is
collateralized by a first preferred mortgage on the vessel M/V Clipper Pacific.
4. Bank of Scotland: In February 1998, the Group entered into a term
loan agreement bearing interest at 2.5% over LIBOR per annum payable at the
earliest of the following dates a.) May 31, 1998, which was subsequently
extended to August 12, 1998, b.) successful closing of the bond issue or c.)
sale and delivery of a new vessel to Millenium or its subsidiaries. The loan is
secured by second preferred mortgages on Vessels M/V Clipper Pacific, M/V
Clipper Atlantic and M/V Monica Marissa.
5. First National Bank of Maryland: Credit Facility bearing interest of
0.5% per annum over the US Prime Rate, payable within one year. The credit
facility is collateralized by a second preferred mortgage on the vessel M/V
Clipper Harmony.
6. First National Bank of Maryland: Term loan bearing interest of 1.5%
per annum over LIBOR payable in ten quarterly instalments of $225 plus a balloon
payment of $1,200 due with the last instalment in June, 2000. The loan is
collateralized by a first preferred mortgage on the vessel M/V Clipper Harmony.
7. Nations Credit Commercial Corporation: Term loan bearing interest at
11.39% per annum payable in ten varying quarterly instalments plus a balloon
payment of $1,800 due in May, 2000. The loan is collateralized by a first
preferred mortgage on the vessel M/V Clipper Golden Hind.
8. Bank of Butterfield: Term loan bearing interest at 11.39% per annum
payable in five annual varying instalments due in January of each calendar year.
Instalments are payable only on the condition that the vessel, M/V Clipper
Golden Hind is operating profitably. The loan is unsecured.
9. Clipper Shipping: Term loan bearing interest at 8.25% per annum
payable in one instalment of $66 and one instalment of $67 through 1998. The
loan is collateralized by a second preferred mortgage on the vessel M/V Clipper
Pacific.
F-13
<PAGE>
10. Drake Associates LP: Term loan bearing interest at 11.39% per annum
payable in five annual varying instalments due in January of each calendar year.
Instalments are payable only on the condition that the vessel, M/V Clipper
Golden Hind is operating profitably. The loan is unsecured.
(c) The future annual loan repayments are as follows:
For the December 31, March 31,
period ended 1997 1998
------------ ---- ----
(unaudited)
1998.................. $ 3,441 $ 3,313
1999.................. 3,677 3,677
2000.................. 5,232 5,232
2001.................. 606 606
------- -------
$12,956 $12,828
======= =======
The reference to LIBOR indicates interest rates applicable to either
3-month, 6-month or 9-month LIBOR. These loans are also collateralized by
general assignment of the mortgaged vessels' hires and freights, as well as,
assignment of any proceeds from insurance settlements or from the sale of the
mortgaged vessels. The carrying amount of the debt approximates its fair value
as of December 31, 1996 and 1997. The debt agreements also include positive and
negative covenants for the respective Vessel owning subsidiaries the most
significant of which are the maintenance of operating accounts, minimum working
capital, minimum cash deposits and minimum market values. The borrowers are
further restricted from incurring additional indebtedness, changing any vessel's
flag, making loans or investments and distributing earnings without the prior
written consent of the lender. Certain of the above loans are personally
guaranteed by the Company's shareholders.
8. Related Party Transactions
Each of the Group's vessels receives management services from the
Group's affiliate, Kylco Maritime Ltd., a Liberian corporation ("Kylco"),
pursuant to a ship management agreement between each Vessel Owning Subsidiaries
and Kylco ("Management Agreement"). Under each Management Agreement, Kylco acts
as the fleet's technical manager (i) providing qualified officers and crews,
(ii) managing day-to-day vessel operation and relationships with charterers,
(iii) purchasing of stores, suppliers and new equipment for the vessels, (iv)
performing general vessel maintenance, reconditioning and repair, including
commissioning and supervision of shipyards, subcontractors or dry dock
facilities required for such work, (v) ensuring regulatory and classification
society compliance, (vi) performing operational budgeting and evaluating, (vii)
arranging financing for vessels and (viii) providing accounting, treasury and
finance functions (including cash disbursements and collections). Kylco also
performs commercial management functions, primarily brokering and negotiating of
vessel charters.
Kylco receives management fees which are calculated at fixed daily
rates. The rates range from $0.233 to $0.493 per day depending on the vessel
type. The management fees amounted to $221, $728 and $896 in 1995, 1996 and
1997, respectively. Kylco, for chartering services also receives 1.25%
commission calculated on the gross charter hire and freight revenues on some of
the vessels. The commission amounted to approximately $42, $54 and $41 in 1995,
1996 and 1997, respectively.
Management fees and commissions charged by Kylco in the three month
periods ended March 31, amounted in 1997 to $223 (unaudited) and $11
(unaudited), respectively, and in 1998 to $223 (unaudited) and $9 (unaudited),
respectively.
Amounts due from related parties reflects the net disbursements and
collections made on behalf of the Vessel Owning Subsidiaries by Kylco during the
normal course of operations. As of December 31, 1997 the account receivable
balance of $722 includes $500 of revenue collected by Kylco from time charter
customers that are owed the Group.
F-14
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
Following the consummation of this Units Placement (Note 11) management
expects that MMI, Kylco and Kylco Maritime (USA) will contract to render
management services to the Group's vessels (existing and committed Note 11)
under terms similar to those described
above.
9. Taxes
The Group is not liable for income taxes since all of its Vessel Owning
Subsidiaries are incorporated in either Cyprus, Panama or Liberia and all of the
Millenium Subsidiaries are incorporated in either Liberia or Cyprus and these
jurisdictions do not impose taxes on international shipping income. While
certain revenue earned by the Group is considered attributable to US sources,
management of the Group has obtained a legal opinion that such revenue is exempt
from US taxation under applicable provisions of the Internal Revenue Code (the
"Code"). Under the laws of Cyprus, Panama and Liberia, the Vessel Owning
Subsidiaries are subject to registration and tonnage taxes which have been
included in "operating expenses" in the accompanying combined statements of
income.
F-14
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
10. Contingencies
There are no material legal proceedings to which the Group is a party
or to which any of its properties are the subject, other than routine litigation
incidental to the Group's business. In the opinion of management, the
disposition of these lawsuits should not have a material impact on the Group's
results of operations, financial position and cash flows.
11. Reorganization
The Units Placement
On July 24, 1998, Millenium successfully completed an offering of
100,000 Units (the "Units Placement"), each Unit representing one thousand
dollars principal amount at maturity of its 12% First Priority Ship Mortgage
Notes Due 2005 (the "Existing Notes") and warrants (the "Warrants") to purchase
five shares of common stock, par value $.01 per share, on the earlier of July
24, 1999 or the date of other certain events specified, of Millenium, at an
exercise price of $.01 per share. The Units, Existing Notes and Warrants are
collectively referred to as the "Securities." The Existing Notes are fully and
unconditionally guaranteed (the "Subsidiary Guarantees") on a senior
collateralized basis by each of the subsidiaries of Millenium (the "Subsidiary
Guarantors," together with Millenium, the "Company"). The Existing Notes will be
collateralized by First Priority Ship Mortgages on 16 vessels, five of which are
existing vessels (the "Existing Vessels") currently owned by certain of the
Subsidiary Guarantors which were acquired on July 24, 1998 and eleven of which
are the Committed Vessels (the "Committed Vessels") which will be acquired
subsequently by certain of the Subsidiary Guarantors. The Company intends to
purchase with the portion of the net proceeds of the offering of the Existing
Notes approximately six additional vessels (the "Additional Vessels," together
with Existing Vessels and the Committed Vessels, the "Mortgaged Vessels").
The Company and Guarantors have agreed for the benefit of the holders
of the Existing Notes that they will file a registration statement under the
Securities Act of 1933 (the "Securities Act"), relating to an exchange offer for
the Existing Notes. If such registration statement is not filed, has not become
effective or is not consummated within the time periods set forth the interest
rate on the Existing Notes will be temporarily increased.
Certain covenants are set forth in relation to the Units Placement,
including limitations on additional indebtedness, investment loans and advances,
restricted payments, liens, sale-leaseback transactions, dividends and other
payment restrictions affecting subsidiaries, disposition of proceeds of asset
sales or event of loss involving vessels, transactions with affiliates, and
mergers.
F-15
<PAGE>
Committed Vessels
The Company has committed to purchase the Committed Vessels for $66.7
million using a portion of net proceeds of the Units Placement. The following
table provides certain information with respect to the Committed Vessels:
<TABLE>
<CAPTION>
Appraisal
Vessel Year Built D.W.T Value
- - - - - - ------ ---------- ----- -----
<S> <C> <C> <C>
Clipper Majestic (T.B.R.Millenium Majestic) 1979 17,152 $ 3,050
Clipper Amethyst (T.B.R.Millenium Amethyst) 1978 23,563 3,000
Clipper Yama (T.B.R.Millenium Yama) 1979 23,538 3,500
Elmar Kivistik (T.B.R.Millenium Elmar) 1987 52,650 8,125
Aleksander Aberg (T.B.R.Millenium Aleksander) 1988 52,650 8,688
Holck Larsen (T.B.R.Millenium Condor) 1981 27,036 5,613
Soren Toubro (T.B.R.Millenium Falcon) 1981 27,048 5,613
LT Odyssey (T.B.R.Millenium Osprey) 1984 28,786 7,113
Mangal Desai (T.B.R.Millenium Eagle) 1983 28,788 6,813
LT Argossy (T.B.R.Millenium Hawk) 1984 28,791 7,113
LT Pragati (T.B.R. Millenium Leader) 1984 37,489 8,100
-------
$66,728
</TABLE>
Each of the Committed Vessels are directly owned by third parties that
were unaffiliated with Millenium at the time of the execution of the related
Memorandum of Agreement and will be acquired in separately negotiated
transactions consummated during 1998 for a total of $66.7 million. The Company
has signed a memorandum of agreement with the respective sellers for the
purchase of each Committed Vessel at a price that is at each vessel's appraised
value, as determined by the average of two appraisals performed by independent
shipbrokers.
New Equity Contributions
On July 24, 1998 MMI received: (a) contribution of 100% of the issued
and outstanding shares of the Subsidiary Guarantors that own the Existing
Vessels, for a value of $4.0 million, (b) commitments relating to the
contribution of the Committed Vessels equal to $4.0 million with respect to
vessels from Aleksander Aberg Maritime Company Ltd. and Elmar Kivistik Maritime
Company Ltd., subsidiaries of ESCO, $1.9 million with respect to vessels from
Yama Shipping Company Ltd., Majestic Shipping Co. Ltd. and Amethyst Shipping Co.
S.A. Ltd. and $7.0 million with respect to the Millenium Leader, the Millenium
Hawk, the Millenium Eagle, the Millenium Osprey, the Millenium Falcon and the
Millenium Condor, (c) cash from Millenium Investment, Inc. equal to $6.1 million
and (d) cash from Management and its affiliates equal to $1.0 million. MMI
contributed the foregoing vessels and cash equity to Millenium.
As of July 24, 1998, MMI was the sole shareholder and registered owner
of Millenium's 9,500,000 issued and outstanding $.01 par value common stock
(10,000,000 shares authorized).
F-16
<PAGE>
GROUP OF SHIPPING COMPANIES
ACQUIRED BY MILLENIUM SEACARRIERS, INC.
Notes to the Combined Financial Statements (Continued)
(Expressed in US Dollars In Thousands)
Use of Proceeds of Reorganization
The sources and uses of proceeds of the Reorganization Transactions
comprising the reorganization are as follows (expressed in millions):
Sources of Proceeds
Proceeds from the issuance of the Existing Notes and Warrants....... $ 96.6
Equity Contribution --Issuance of Common Stock....................... 24.0
Total......................................................... $ 120.6
=======
Uses of Proceeds
Existing Vessel Owning Companies:
Repayment of indebtedness........................................... $ 12.9
Purchase of Stock of the Existing Vessel Owning Companies........... 4.0
Acquisition of Committed Vessels........................................ 66.7
Escrow Account.......................................................... 31.4
Fees and expenses....................................................... 5.6
Total......................................................... $ 120.6
=======
Working Capital Facility
On July 20, 1998, the Company entered into a $7.0 million one
year working capital revolving line of credit with The Bank of New York,
effective upon the consummation of the Units Placement. Borrowings under the
facility bear interest at LIBOR+1.5%, are collateralized by the Company's
vessels and subject to various covenants. The Facility is subject to a 0.375%
commitment fee on the unused
portion.
F-17
<PAGE>
MILLENIUM SEACARRIERS, INC.
CONSOLIDATED BALANCE SHEETs
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998
------------------
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents (including cash in escrow of $33,722,350)................ $ 38,760,289
Receivables: Claims & other....................................................... 186,548
Inventories and prepaid expenses (Note 2).......................................... 392,332
Vessel Deposit..................................................................... 750,000
-------------
TOTAL CURRENT ASSETS............................................................... $ 40,089,169
Deferred charges, net of accumulated amortization (Note 2)......................... 7,123,406
Vessels at cost (fair market value)................................................ 74,662,500
Less : accumulated depreciation.................................................... (594,074)
Net book value..................................................................... 74,068,426
Other Assets (Note 3).............................................................. 3,061,121
-------------
TOTAL ASSETS....................................................................... $ 124,342,122
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable............................................................. $ 4,059,290
Accrued interest and other liabilities............................................. 3,375,274
Charter revenues received in advance............................................... 798,782
-------------
TOTAL CURRENT LIABILITIES 8,233,346
Long-term debt, net of unamortized portion of accumulated
bond discount of 4,480,289 (Note 4)................................................ 95,519,711
-------------
TOTAL LIABILITIES................................................................. 103,753,057
-------------
SHAREHOLDERS' EQUITY
Common stock and paid-in capital
(9,500,000 shares issued and outstanding).......................................... 22,100,000
Retained earnings / (deficit)...................................................... (1,510,935)
-------------
TOTAL SHAREHOLDERS' EQUITY......................................................... 20,589,065
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................................... $ 124,342,122
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
MILLENIUM SEACARRIERS, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR PERIOD FROM
JULY 24, 1998
THROUGH
SEPTEMBER 30, 1998
------------------
<S> <C>
REVENUES
Freight and hire revenues............................................................. $ 4,049,532
Voyage expenses....................................................................... (37,687)
Commissions........................................................................... (173,396)
-------------
Net Revenue.............................................................. 3,838,449
-------------
EXPENSES
Vessel operating expenses............................................................. 2,398,967
Management Fees (Note 5).............................................................. 328,960
Depreciation and Amortization (Note 2)................................................ 974,794
-------------
3,702,721
-------------
Operating Income (Loss) 135,728
-------------
OTHER INCOME (EXPENSES)
Interest Expense, net................................................................. (1,667,048)
Other................................................................................. 20,385
-------------
(1,646,663)
NET INCOME (LOSS) $ (1,510,935)
=============
EARNINGS PER SHARE DATA (BASIC AND DILUTED)
Net Loss Per Share (0.47)
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
MILLENIUM SEACARRIERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................................... $ (1,510,935)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES :
Depreciation and amortization.......................................................... 974,794
Receivable: Claims & other............................................................. (185,447)
Inventories and prepaid expenses....................................................... (227,017)
Trade accounts payable................................................................. 1,284,812
Other liabilities...................................................................... 2,061,399
Charter revenue received in advance.................................................... 558,333
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,955,939
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired..................................................... (4,687,388)
Purchase of vessels.................................................................... (47,287,500)
Deposit on vessel...................................................................... (750,000)
Deferred charge........................................................................ (1,635,442)
---------------
NET CASH USED IN INVESTING ACTIVITIES: (54,360,330)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................................................... 95,393,000
Principal payments on Existing Vessel debt............................................. (12,428,322)
Shareholder contribution............................................................... 6,000,000
Issuance of warrants................................................................... 1,200,000
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................................. 90,164,678
---------------
INCREASE IN CASH AND CASH EQUIVALENTS.................................................. 38,760,287
---------------
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD.......................................... 2
---------------
CASH AND CASH EQUIVALENTS OF PERIOD.................................................... $ 38,760,289
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
MILLENIUM SEACARRIERS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
COMMON STOCK RETAINED
AND EARNINGS
PAID-IN CAPITAL /DEFICIT TOTAL
--------------- -------- -----
<S> <C> <C> <C>
ISSUANCE OF STOCK :
Incorporation, March 10, 1998 $ 2 $ -- $ 2
Acquisition of Existing Vessel Owning
Companies, July 24, 1998 3,999,998 -- 3,998,000
-------------- -------------- --------------
BALANCE, JULY 24, 1998 4,000,000 4,000,000
Shareholder contributions 18,100,000 -- 18,100,000
Net income (loss) for the period July 24, 1998 to
September 30, 1998 -- (1,510,935) (1,510,935)
-------------- -------------- --------------
BALANCE, SEPTEMBER 30, 1998 $ 22,100,000 $ (1,510,935) $ 20,589,065
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
1. BUSINESS INFORMATION
Millenium Seacarriers, Inc., ("Millenium" or the "Company"), is an
international shipping company that owns and operates a fleet of drybulk
carriers, primarily Handysize drybulk carriers. The Company's fleet of 15
vessels as of September 30, 1998, transports drybulk cargo worldwide.
The Company was registered and incorporated on March 10, 1998 in
the Cayman Islands. Its principal business is the acquiring, upgrading and
operating of vessels. Millenium conducts its operations through its subsidiaries
whose principal activity is the operation and ownership of drybulk vessels that
are under the exclusive management of Millenium Management, Inc. ("MMI") and
sub-management of Kylco Maritime Ltd. and Kylco Maritime (USA), Inc. (see Note
5).
UNITS PLACEMENT
On July 24, 1998, Millenium successfully completed an offering of
100,000 Units (the "Units Placement"), each Unit represents one thousand dollars
principal amount at maturity of its 12% First Priority Ship Mortgage Notes Due
2005 (the "Notes") and warrants (the "Warrants") to purchase five shares of
common stock, par value $.01 per share, on the earlier of July 24, 1999 or the
date of other certain events specified, of Millenium, at an exercise price of
$.01 per share. The Units, Existing Notes and Warrants are collectively referred
to as the "Securities." The Notes are fully and unconditionally guaranteed (the
"Subsidiary Guarantees"), jointly and severally, on a senior collateralized
basis by each of the subsidiaries of Millenium (the "Subsidiary Guarantors,"
together with Millenium, the "Company"). The Existing Notes are currently
collateralized by First Priority Ship Mortgages on 15 vessels and the certain
proceeds from the Units Placement held in an escrow account pending the purchase
of up to six additional vessels.
Certain covenants are set forth in relation to the Units Placement,
including limitations on additional indebtedness, investment loans and advances,
restricted payments, liens, sale-leaseback transactions, dividends and other
payment restrictions affecting subsidiaries, disposition of proceeds of asset
sales or event of loss involving vessels, transactions with affiliates, and
mergers.
COMMITTED VESSELS
The Company has purchased the following Committed Vessels for $48.5
million using a portion of net proceeds of the Units Placement. The following
table provides certain information with respect to the Committed Vessels
(expressed in thousands):
<TABLE>
<CAPTION>
APPRAISAL
VESSEL YEAR BUILT D.W.T VALUE
- - - - - - ------ ---------- ----- -----
<S> <C> <C> <C>
Millenium Majestic (ex Clipper Majestic) 1979 17,152 $ 3,050
Millenium Amethyst (ex Clipper Amethyst) 1978 23,563 3,000
Millenium Yama (ex Clipper Yama) 1979 23,538 3,500
Millenium Aleksander (ex Aleksander Aberg) 1988 52,650 8,688
Millenium Condor (ex Holck Larsen) 1981 27,036 5,613
Millenium Falcon (ex Soren Toubro) 1981 27,048 5,613
Millenium Osprey (ex LT Odyssey) 1984 28,786 7,113
Millenium Eagle (ex Mangal Desai) 1983 28,788 6,813
Millenium Hawk (ex LT Argossy) 1984 28,791 7,113
Millenium Leader (ex LT Pragati) 1984 37,489 8,100
-------
$58,603
</TABLE>
F-22
<PAGE>
MILLENIUM SEACARRIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 1998 the purchase of the following Committed Vessel was yet
to be completed :
<TABLE>
<CAPTION>
APPRAISAL
VESSEL YEAR BUILT D.W.T VALUE
- - - - - - ------ ---------- ----- -----
<S> <C> <C> <C>
Elmar Kivistik (T.B.R.Millenium Elmar) 1987 52,650 $8,125
</TABLE>
Each of the Committed Vessels were directly owned by third parties that
were unaffiliated with the Company at the time of the execution of the related
Memorandum of Agreement and were acquired in separately negotiated transactions
consummated during the 69-day period ending September 30, 1998.
NEW EQUITY CONTRIBUTIONS
On July 24, 1998 MMI received: (a) contribution of 100% of the issued
and outstanding shares of the Subsidiary Guarantors that own the Existing
Vessels, for a value of $4.0 million, (b) commitments relating to the
contribution of the Committed Vessels equal to $4.0 million with respect to
vessels from Aleksander Aberg Maritime Company Ltd. and Elmar Kivistik Maritime
Company Ltd., subsidiaries of ESCO, $1.9 million with respect to vessels from
Yama Shipping Company Ltd., Majestic Shipping Co. Ltd. and Amethyst Shipping Co.
S.A. Ltd. and $7.0 million with respect to the Millenium Leader, the Millenium
Hawk, the Millenium Eagle, the Millenium Osprey, the Millenium Falcon and the
Millenium Condor, (c) cash from Millenium Investment, Inc. equal to $6.1 million
and (d) cash from Management and its affiliates equal to $1.0 million. MMI
contributed the foregoing vessels and cash equity to the Company. As of
September 30, 1998, MMI has received all of the above commitments other than the
commitment from the Elmar Kivistik Maritime Company Ltd.
As of September 30, 1998, MMI was the sole shareholder and registered
owner of Millenium's 9,500,000 issued and outstanding $.01 par value common
stock (10,000,000 shares authorized).
WORKING CAPITAL FACILITY
On July 20, 1998, the Company entered into a $7.0 million one year
working capital revolving line of credit with The Bank of New York, effective
upon the consummation of the Units Placement. Borrowings under the facility bear
interest at LIBOR+1.5%, are collateralized by the Company's vessels and subject
to various covenants. The Facility is subject to a 0.375% commitment fee on the
unused portion. As of September 30, 1998 there are no amounts outstanding under
this facility.
ACQUISITION
On July 24, 1998, the Company acquired the companies that own the
Existing Vessels. This acquisition has been accounted for as a purchase and
accordingly the operating results of companies that own the Existing Vessels has
been included in the Company's consolidated financial statements from the date
of acquisition.
The pro forma condensed consolidated results of operations for the
period ending September 30, 1998 assumes that the acquisition of the Existing
Vessels occurred as of January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA AS OF SEPTEMBER 30, 1998
----------------------------------
<S> <C>
Net Revenue $ 9,655,657
Net Income (loss) (2,059,466)
Earnings per share data (basic and diluted) ($ 0.22)
Net (Loss) per share
</TABLE>
F-23
<PAGE>
MILLENIUM SEACARRIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States.
All intercompany balances and transactions have been eliminated upon
combination. The financial statements presented herein are for the period from
March 10, 1998 (the date the Company was incorporated ) through September 30,
1998. Prior to July 24, 1998, the Company had no operations. The Company's
fiscal year ends December 31.
In the opinion of Management, these statements, subject to adjustments
(consisting only of normal recurring accruals), present fairly, in all material
respects, the Company's consolidated financial position, results of operations
and cashflows for the interim period presented.
The unaudited interim financial results since inception of the
Company's operations to the period ended September 30, 1998 presented herein are
not necessarily indicative of the results expected for the full year.
USE OF ESTIMATES
The preparation of the consolidated financial statements are in
conformity with accounting principles generally accepted in the United States
and requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the date of the consolidated financial statements, and the
stated amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
ACQUISITIONS
The operating results of vessels acquired during the period are
included in the accompanying consolidated financial statements from the date of
their acquisition.
VESSELS
Vessels owned by the Company are stated at cost which comprises the
vessels' contract price, major repairs and improvements, direct delivery and
acquisition expenses, and finance charges relating to the acquisition of the
vessel.
DEPRECIATION
Depreciation is calculated on a straight line basis by reference to the
vessels' cost, age and scrap value as estimated at the date of acquisition.
Depreciation is calculated over the remaining useful life of the vessel, which
is assumed to be 30 years from the vessel's original construction.
REVENUE AND EXPENSE RECOGNITION
Revenue and expenses resulting from each voyage or time charter are
accounted for on the accrual basis and are recognized in the income statement on
the percentage of completed voyage basis. Chartered revenues received in advance
are recorded as a liability until charter services are rendered.
Vessels' operating expenses comprise all expenses relating to the
operation of the vessels, including crewing, repairs and maintenance,
insurances, stores and lubricants, and miscellaneous expenses, including
communications. Voyage expenses comprise all expenses relating to particular
voyages, including bunkers, port charges, canal tolls and agency fees.
FOREIGN CURRENCIES
The Company's functional currency is U.S. dollar. Assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
at exchange rates prevailing at the balance sheet date. Income and expenses
denominated in foreign currencies are translated into U.S. dollars at exchange
rates prevailing at the date of the transaction. Resulting exchange gains and/or
losses on settlement or translation are included in operating expenses in the
accompanying consolidated statement of income.
REPAIRS, MAINTENANCE AND DEFERRED CHARGES
Expenditures for vessel repair and maintenance are charged against
income in the period incurred. Drydocking and special survey costs are deferred
and amortized over the estimated period to the next scheduled drydocking or
survey, which are generally, two and a half years and five years, respectively.
The amortization of drydocking and special survey costs are included in
operating expenses.
Deferred charges also include costs associated with the issuance of
Notes and the acquisition of the companies that own the Existing Vessels. These
costs are amortized over the life of the Notes (7 years).
F-24
<PAGE>
MILLENIUM SEACARRIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P&I BACK CALLS
The Company participates in a Protection and Indemnity (P&I) insurance
coverage plan provided by mutual insurance societies known as P&I clubs. Under
the terms of the plan, participants may be required to pay additional premiums
to fund operating deficits incurred by the clubs ("back calls"). Obligations for
back calls are accrued annually. CASH AND EQUIVALENTS
The Company considers time deposits or other certificates purchased
with an original maturity of three months or less to be cash equivalents. Cash
from certain of the proceeds of the issuance of the Notes have been placed in a
restricted Escrow account.
INVENTORIES
Inventories consist of lubricants, spares and stores on board the
Company's vessels at the balance sheet date. Inventories are stated at lower of
cost or market value. Cost is determined on a first-in, first-out method.
LONG-LIVED ASSETS
The Company has adopted the provision of Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for Impairment of Long-lived
Assets to Be Disposed Of. The statement requires that long-lived assets used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recovered. An impairment loss for an asset held for use should be recognized
when the estimate of non-discounted future net cash flows, excluding interest
charges, expected to be generated by the use of the asset is less than its
carrying amount. Measurement of impairment loss is based on the fair market
value of the asset.
BASIC AND DILUTED EARNINGS (LOSS) PER ORDINARY SHARE
Basic and diluted earnings per ordinary share have been computed by
dividing net income (loss) by the average number of ordinary shares outstanding
(3,197,560) during the period March 10, 1998 (the date the Company was
incorporated) through September 30, 1998.
3. OTHER ASSETS
The other assets represent the excess cost over book value of assets
acquired from the companies that own the Existing Vessels. These assets are
amortized over the life of the Notes (7 years).
F-25
<PAGE>
MILLENIUM SEACARRIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG TERM DEBT
<TABLE>
<CAPTION>
September 30, 1988
------------------
First Priority Ship Mortgage Notes (the "Notes") due 2005 issued on
July 24, 1998. Interest on the Notes is payable semi-annually on
January 15 and July 15 of each year, commencing January 15, 1999, at
a rate of 12% per annum. The Notes will mature on July 15, 2005 and
will be redeemable, in whole or part, at the option of the Company at any time
on or after July 15, 2003.
<S> <C>
Long-term Debt $ 100,000,000
Less: Unamortized portion of accumulated bond discount (4,480,289)
-------------
Total Long-term Debt $ 95,519,711
=============
</TABLE>
The gross bond discount of $4,607,000 is amortized over the life of the
Notes (7 years).
The indebtedness evidenced by the Notes constitutes a general secured
senior obligation of the Company and is fully and unconditionally guaranteed by
each of the subsidiaries of the Company on a joint and several basis and will
rank PARI PASSU in right of payment with all future senior indebtedness of the
Company and its subsidiary guarantors. The Indenture, pursuant to where the
Notes were issued (the Notes Indenture), contains certain covenants that among
other things, limit the type and amount of additional indebtedness that may be
incurred by the Company and imposes certain limitations on investments, loans
and advances, sales or transfers of assets, dividends and other payments, the
ability of the Company to enter into sale-leaseback transactions, certain
transactions, with affiliates and certain mergers, consolidations and purchases
of assets, and amendments to security agreements. The Company is currently in
material compliance with the terms of the Notes Indenture at September 30, 1998.
5. RELATED PARTY TRANSACTIONS
Each of the Company's vessels received management services from its
equity shareholder MMI pursuant to a Management Agreement among the Company,
each of the Company's vessel owning subsidiaries (the "Vessel Owning
Subsidiaries") and MMI. Under the Management Agreement, MMI acts as the fleet's
technical and commercial manager. As a technical manager, MMI, on behalf of the
Vessel Owning Subsidiaries, (i) provides qualified officers and crews on board
vessels, (ii) manages day-to-day vessel operations and maintains relationships
with charterers, (iii) purchases on behalf of the Company stores, spares,
supplies and equipment for vessels, (iv) performs general vessel maintenance,
subcontracts for drydock facilities for any major repairs and overhauls, (v)
ensures regulatory and classification society compliance, (vi) performs vessel
operational budgeting and evaluations, and (vii) provides accounting, treasury
and finance functions (including cash collections and disbursements on behalf of
the Company). As remuneration for its services, MMI receives a fixed management
fee (payable monthly in advance) ranging from $350 to $600 per day depending on
the vessel type. The Company treats the management fee paid to MMI as an
operating expense.
Under commercial management services, MMI, on behalf of the Vessel
Owning Subsidiaries, primarily maintains and negotiates vessel charters, vessel
sale-and-purchase brokering, and places insurance covers for vessels. As
remuneration for its services, MMI receives a commission of 1.25% on all gross
time charter revenue and 1.75% on all gross spot charter revenue earned by each
vessel managed, 1% on the gross sale or purchase price of a vessel for brokerage
services, and 2% of all insurance coverage placed per vessel managed.
F-26
<PAGE>
MILLENIUM SEACARRIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Since July 24, 1998, MMI has sub-contracted certain of its technical
and commercial management services to Kylco Maritime Limited and Kylco Maritime
(USA), Inc.
MMI, which owns 100% of the outstanding common stock of the Company has
contributed a total of $24.0 million in equity consisting of $7.1 million in
cash and $16.9 million in contributed vessel equity. Of these amounts, as of
September 30, 1998, MMI has contributed $7.1 million in cash and $14.9 million
in vessel equity. The remaining $2 million in contributed vessel equity
represents vessel equity in respect of the acquisition of the last of the 11
vessels (the Elmar Kivistik, to be renamed Millenium Elmar) MMI had committed to
purchase prior to the completion of the offering and issuance of the Notes (the
"Committed Vessels").
6. TAXES
The legal jurisdictions of the countries in which the Company and its
subsidiaries are incorporated do not impose income taxes upon their activities.
The Vessel Owning Subsidiaries are incorporated in either the Bahamas, Cayman
Islands, Cyprus, Liberia or Panama and under the laws of these countries the
Vessel Owning Subsidiaries are subject to registration and tonnage taxes which
have been included in "operating expenses" in the accompanying consolidated
statements of income.
7. CONTINGENCIES
There are no material legal proceedings to which the Company is a party
or to which any of its properties are the subject, other than routine litigation
incidental to the Company's business. In the opinion of management, the
disposition of these lawsuits should not have a material impact on the Company's
results of operations, financial position and cash flows.
F-27
<PAGE>
- - - - - - --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such an
offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since such
date.
Until ______ all dealers effecting transactions in the registered securities,
whether or not participating in this distributions, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................................1
Risk Factors.........................................................14
The Exchange Offer...................................................23
Use of Proceeds......................................................29
Capitalization.......................................................30
Selected Combined Financial Information of the Company...............31
Unaudited Pro Forma Condensed Consolidated Financial
Information.......................................................33
Management's Discussion and Analysis
of Financial Condition and Results of Operations..................36
The International Bulk Carrier Market................................40
Business.............................................................45
Officers and Directors...............................................55
Principal Stockholders...............................................57
Certain Transactions.................................................57
Description of the Exchange Notes....................................59
Description of the Warrants..........................................95
Book-entry Registration..............................................96
The Mortgages........................................................97
Description of Working Capital Facility Agreement...................101
Material United States Federal Income Tax Consequences..............102
Certain Foreign Tax Considerations..................................103
Plan of Distribution................................................104
Rating..............................................................104
Legal Matters.......................................................104
Independent Public Accountants......................................105
Glossary of Certain Shipping Terms..................................106
Index to Combined Financial Statements..............................F-1
- - - - - - --------------------------------------------------------------------------------
MILLENIUM SEACARRIERS, INC.
$100,000,000
12% First Priority Ship Mortgage
Exchange Notes
Due 2005
PROSPECTUS
- - - - - - --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MILLENIUM SEACARRIERS, INC. ("MILLENIUM").
Millenium is a company organized under the laws of the Cayman Islands. The
Companies Law (1998 Revision) includes no provision in relation to the
indemnification officers and directors of companies organized under the laws of
the Cayman Islands.
Article 123 of the Articles of Association provides for indemnification of
its directors and officers as follows:
The Directors and officers for the time being of the Company and any
trustee for the time being acting in relation to any of the affairs of the
Company and their heirs, executors, administrators and personal
representatives respectively shall be indemnified out of the assets of the
Company from and against all actions, proceedings, costs, charges, losses,
damages and expenses which they or any of them shall or may incur or
sustain by reason of any act done or omitted in or about the execution of
their duty in their respective offices or trusts, except such (if any) as
they shall incur or sustain by or through their own willful neglect or
default respectively and no such Director, officer or trustee shall be
answerable for the acts, receipts, neglects or defaults of any other
Director, officer or trustee or for joining in any receipt for the sake of
conformity or for the solvency or honesty of any banker or other persons
with whom any monies or effects belonging to the Company may be lodged or
deposited for safe custody or for any insufficiency of any security upon
which any monies of the Company may be invested or for any other loss or
damage due to any such cause as aforesaid or which may happen in or about
the execution of his office or trust unless the same shall happen through
the wilful neglect or default of such Director, Officer or trustee.
MILLENIUM II, INC., MILLENIUM III, INC., MILLENIUM IV, INC., MILLENIUM V, INC.,
MILLENIUM VI, INC., MILLENIUM VII, INC., MILLENIUM YAMA, INC., MILLENIUM
MAJESTIC, INC., MILLENIUM AMETHYST, INC., MILLENIUM ELMAR, INC. AND MILLENIUM
ALEKSANDER, INC. (EACH, A "SUBSIDIARY GUARANTOR"; AND, COLLECTIVELY THE "CAYMAN
SUBSIDIARY GUARANTORS").
Each of the Cayman Subsidiary Guarantors is a company organized under the
laws of the Cayman Islands. The Companies Law (1998 Revision) includes no
provision in relation to the indemnification officers and directors of companies
organized under the laws of the Cayman Islands.
Article 123 of the Articles of Association of each of the Cayman Subsidiary
Guarantors provides for indemnification of their respective directors and
officers as follows:
The Directors and officers for the time being of the Company and any
trustee for the time being acting in relation to any of the affairs of the
Company and their heirs, executors, administrators and personal
representatives respectively shall be indemnified out of the assets of the
Company from and against all actions, proceedings, costs, charges, losses,
damages and expenses which they or any of them shall or may incur or
sustain by reason of any act done or omitted in or about the execution of
their duty in their respective offices or trusts, except such (if any) as
they shall incur or sustain by or through their own wilful
<PAGE>
neglect or default respectively and no such Director, officer or trustee
shall be answerable for the acts, receipts, neglects or defaults of any
other Director, officer or trustee or for joining in any receipt for the
sake of conformity or for the solvency or honesty of any banker or other
persons with whom any monies or effects belonging to the Company may be
lodged or deposited for safe custody or for any insufficiency of any
security upon which any monies of the Company may be invested or for any
other loss or damage due to any such cause as aforesaid or which may happen
in or about the execution of his office or trust unless the same shall
happen through the wilful neglect or default of such Director, Officer or
trustee.
OAKMONT SHIPPING AND TRADING LIMITED, RAPID OCEAN CARRIERS INC. AND IVY
NAVIGATION LTD. (EACH, A "SUBSIDIARY GUARANTOR"; AND, COLLECTIVELY THE "LIBERIAN
SUBSIDIARY GUARANTORS").
Each of the Liberian Subsidiary Guarantors is a corporation organized under
the Business Corporation Act of the Republic of Liberia.
Subsection 1 of Section 6.13 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director or officer of the corporation or is or was serving at the request
of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection 2 of Section 6.13 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification may be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and
only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper.
Section 6.13 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of
any action, suit or proceeding referred to in subsections 1 and 2 above or
in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably
<PAGE>
incurred by him in connection therewith; empowers the corporation to
advance expenses incurred in defending a civil or criminal action, suit or
proceeding unless it shall be determined that such officer or director is
entitled to indemnification by the corporation; and empowers the
corporation to purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him
against such liabilities under Section 6.13.
The by-laws of the Liberian Subsidiary Guarantors do not contain any
provisions relating to the indemnification of officers or directors.
TOPSCALE SHIPPING COMPANY LIMITED AND CONIFER SHIPPING COMPANY LIMITED (EACH, A
"SUBSIDIARY GUARANTOR"; AND COLLECTIVELY, THE "CYPRIOT SUBSIDIARY GUARANTORS";
AND, TOGETHER WITH MILLENIUM, THE CAYMAN SUBSIDIARY GUARANTORS AND THE LIBERIAN
GUARANTORS, THE "REGISTRANTS").
Each of the Cypriot Subsidiary Guarantors is a corporation organized and
incorporated under the Laws of the Republic of Cyprus. The Cypriot Corporate Law
on Indemnity is governed by CAP. 113 Companies - of the Statue Laws of Cyprus -
First Schedule - Table A - Section 136 which provides that:
Every Director, Managing Director, Auditor, Secretary and other Officer for
the time being of the Company shall be indemnified out of the assets of the
Company against any liability incurred by him in defending any Proceedings,
whether Civil or Criminal in which Judgement is given in his favor or in
which he is acquitted or in connecting with any application under section
383 of the Law, in which relief is granted to him by the Court.
Section 383 of the Law (CAP. 113 - Companies) provides:
383 (1). If in any Proceeding for Negligence, default, breach of duty or
breach of trust against an Officer of a Company or Person employed by a
Company as Auditor ( whether he is or is not an Officer of the Company ) it
appears to the Court hearing the case that Officer or Person is or may be
liable in respect of the negligence, default, breach of duty or breach of
trust, but that he has acted honestly and reasonably, and that, having
regard to all the circumstances of the case, including those connected with
his appointment, he ought fairly to be excused for the Negligence, default,
breach of duty or breach of trust, that Court may relieve him, either
wholly or partly, from his liability on such terms as the Court may think
fit.
383 (2). Where any such Officer or Person aforesaid has reason to apprehend
that any claim will or might be made against him in respect of any
negligence, default, breach of duty or breach of trust, he may apply to the
Court for relief, and the Court on any such Application shall have the same
power to relief him as under this section it would have had if it had been
a Court before which Proceedings against that person for negligence,
default, breach of duty or breach of trust has been brought.
Article 1 of the Articles of Association of the Cypriot Subsidiary
Guarantors provides for
<PAGE>
indemnification of officers and directors that is applicable to Cap.
113-Companies Statute of Laws of Cyprus - First Schedule - Table A - Section
136. Article 1 of the Articles of Association of the Cypriot Subsidiary
Guarantors provides for indemnification of directors and officers as follows:
The regulations contained in Part I of Table "A" in the First Schedule of
the Companies Law, Cap. 113 (which Table is hereinafter called "Table A")
shall apply to this Company, save those which by these presents are
excepted or amended or which are inconsistent with the other provisions of
these Articles. The regulations of Part 1 of "Table A" No. 11, 24, 53, 58,
60, 77, 79, 88 (a), 89, 90, 91, 92, 98 and 113 shall not apply, but save as
above provided and in addition to the other provisions of Part I of "Table
A", the following shall constitute the Articles of Association of this
Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
*3.1 -- Memorandum and Articles of Association of
Millenium Seacarriers, Inc. ("Millenium").
*3.2 -- Articles of Incorporation of Oakmont Shipping
and Trading Limited ("Oakmont Shipping").
*3.3 -- By-laws of Oakmont Shipping.
*3.4 -- Articles of Incorporation of Rapid Ocean
Carriers Inc. ("Rapid Ocean").
*3.5 -- By-laws of Rapid Ocean.
*3.6 -- Articles of Incorporation of Ivy
Navigation Ltd. ("Ivy Navigation").
*3.7 -- By-laws of Ivy Navigation.
*3.8 -- Memorandum and Articles of Association of
Topscale Shipping Company Limited
("Topscale Shipping").
*3.9 -- Memorandum and Articles of Association of
Conifer Shipping Company Limited
("Conifer Shipping").
*3.10 -- Memorandum and Articles of Association of
Millenium II, Inc. ("Millenium II").
*3.11 -- Memorandum and Articles of Association of
Millenium III, Inc. ("Millenium III").
*3.12 -- Memorandum and Articles of Association of
Millenium IV, Inc. ("Millenium IV").
*3.13 -- Memorandum and Articles of Association of
Millenium V, Inc. ("Millenium V").
<PAGE>
*3.14 -- Memorandum and Articles of Association of
Millenium VI, Inc.
("Millenium VI").
*3.15 -- Memorandum and Articles of Association of
Millenium VII, Inc. ("Millenium VII").
*3.16 -- Memorandum and Articles of Association of
Millenium Yama, Inc. ("Millenium Yama").
*3.17 -- Memorandum and Articles of Association of
Millenium Elmar, Inc. ("Millenium Elmar").
*3.18 -- Memorandum and Articles of Association of
Millenium Majestic, Inc. ("Millenium Majestic").
*3.19 -- Memorandum and Articles of Association of Millenium
Amethyst, Inc. ("Millenium Amethyst").
*3.20 -- Memorandum and Articles of Association of
Millenium Aleksander, Inc. ("Millenium Aleksander").
*4.1 -- Indenture, dated as of July 15, 1998 (the
"Indenture"), by and among Millenium Seacarriers,
each subsidiary of Millenium Seacarriers named
therein (the "Subsidiary Guarantors") and The First
National Bank of Maryland as Trustee (the
"Trustee").
*4.2 -- Escrow and Pledge Agreement, dated as of July 15,
1998 (the "Escrow Agreement"), by and between
Millenium Seacarriers and The First National Bank of
Maryland, as Escrow Agent (the "Escrow Agent").
*4.3 -- Collateral Agency and Intercreditor Agreement, dated
as of July 15, 1998 (the "Collateral Agency
Agreement"), by and among Millenium Seacarriers, the
Subsidiary Guarantors named therein, the Trustee,
the Collateral Agent and The Bank of New York.
*4.4 -- Form of Exchange Note.
*4.5 -- Form of First Preferred Liberian Ship Mortgage.
*4.6 -- Form of First Preferred Panamanian Naval Mortgage.
*4.7 -- Form of Cayman Islands Statutory Ship Mortgage.
*4.8 -- Form of Cayman Islands Deed of Covenants to Cayman
Islands Statutory Ship Mortgage.
*4.9 -- Form of Cypriot Statutory Ship Mortgage.
<PAGE>
*4.10 -- Form of Cypriot Deed of Covenants to the Cypriot
Statutory Ship Mortgage.
*4.11 -- Form of Bahamian Statutory Ship Mortgage.
*4.12 -- Form of Bahamian Deed of Covenants to the Bahamian
Statutory Ship Mortgage.
*4.13 -- Form of Insurance Assignment (the "Insurance
Assignment"), by and between each of the Subsidiary
Guarantors, as applicable and the Collateral Agent
*5.1 -- Opinion of Thacher Proffitt & Wood, counsel to
Millenium and the Subsidiary Guarantors, as to the
validity of the Exchange Notes.
*8.1 -- Opinion of Thacher Proffitt & Wood, counsel to
Millenium and the Subsidiary Guarantors, as to
Certain United States Income Tax Considerations
(contained in Exhibit 5.1)
*8.2 -- Opinion of Maples and Calder, special counsel to
Millenium and each Subsidiary Guarantor organized in
the Cayman Islands (the "Cayman Subsidiary
Guarantors"), as to certain Cayman Island Tax
Considerations.
*8.3 -- Opinion of the Law Offices of Basil T. Patkos,
special counsel to each Subsidiary Guarantor,
organized in the Republic of Liberia (the "Liberian
Subsidiary Guarantors"), as to certain Liberian Tax
Considerations.
*8.4 -- Opinion of Andreas P. Demetriades & Associates,
special counsel to each Subsidiary Guarantor
organized in the Republic of Cyprus (the "Cypriot
Subsidiary Guarantors"), as to certain Cypriot Tax
Considerations.
*10.1 -- Purchase Agreement, dated as of July 20, 1998 (the
"Purchase Agreement") by and among Millenium
Seacarriers, the Subsidiary Guarantors named therein
and Credit Suisse First Boston Corporation and
Donaldson, Lufkin & Jenrette Securities Corporation
(the "Initial Purchasers").
*10.2 -- The Management Agreement, dated as of July 1, 1998
(the "Management Agreement"), by and among Millenium
Seacarriers, Millenium Management, Inc. (the
"Manager"), and the Subsidiary Guarantors named
therein.
*10.3 -- The Registration Rights Agreement, dated as of July
20, 1998 (the "Registration Rights Agreement"), by
and among Millenium Seacarriers, the Subsidiary
Guarantors named therein and the Initial Purchasers.
*10.4 -- Credit Agreement, dated as of July 20, 1998 (the
"Credit Agreement"), by and between Millenium
Seacarriers and The Bank of New York.
<PAGE>
*10.5 -- Warrant Agreement, dated as of July 15, 1998 (the
"Warrant Agreement"), by and among Millenium, the
Subsidiary Guarantors named therein and ChaseMellon
Shareholder Services, L.L.C. (the "Warrant Agent").
*10.6 -- Advisory Agreement, dated as of July 24, 1998 (the
"Advisory Agreement"), by and between Millenium
Seacarriers and Millenium Advisors, Inc. ("Millenium
Advisors").
*10.7 -- Guarantee Agreement, dated as of July 20, 1998 (the
"Guarantee Agreement"), by and between the
Subsidiary Guarantors named therein and The Bank of
New York.
+ 10.8 -- Charterparty relating to m.v. Millenium Hawk, dated
July 27, 1998 (the "Millenium Hawk Charterparty"),
by and between Millenium II and FedNav International
Limited ("FedNav").
+ 10.9 -- Charterparty relating to m.v. Millenium Eagle, dated
July 27, 1998 (the "Millenium Eagle Charterparty"),
by and between Millenium VII and FedNav.
+ 10.10 -- Charterparty relating to m.v. Millenium Osprey,
dated July 27, 1998 (the "Millenium Osprey
Charterparty"), by and between Millenium VI and
FedNav.
+ 10.11 -- Charterparty relating to m.v. Millenium Falcon,
dated July 27, 1998 (the "Millenium Falcon
Charterparty"), by and between Millenium V and
FedNav.
+ 10.12 -- Charterparty relating to m.v. Millenium Condor,
dated July 27, 1998 (the "Millenium Condor
Charterparty"), by and between Millenium IV and
FedNav.
+ 10.13 -- Charterparty relating to m.v. Monica Marissa, dated
October 27, 1995, as amended by Addendum No. 1 dated
April 30, 1997 (the "Monica Marissa Charterparty"),
by and between Oakmont Shipping and Cementos
Mexicanos ("Cemex").
+ 10.14 -- Charterparty relating to m.v. Clipper Harmony, dated
February 21, 1996, as amended by Addendum No. 1
dated May 2, 1997 and Addendum No. 2 dated January
23, 1998 (the "Clipper Harmony Charterparty"), by
and between Ivy Navigation and Clipper Group
("Clipper").
+ 10.15 -- Charterparty relating to m.v. Clipper Golden Hind,
dated March 14, 1995, as amended by Addendum No. 1
dated April 25, 1995, Addendum No. 2 dated February
21, 1996 and Addendum No. 3 dated August 14, 1996
(the "Clipper Golden Hind Charterparty"), by and
between Rapid Ocean and Clipper.
+ 10.16 -- Charterparty relating to m.v. Clipper Pacific, dated
January 8, 1993 as
<PAGE>
amended by Addendum No. 1, Addendum No. 2, Addendum
No. 3 dated Feruary 21, 1996, Addendum No. 4 dated
February 21, 1996, Addendum No. 5 dated August 14,
1996 and Addendum No. 6 dated August 14, 1996 (the
"Clipper Pacific Charterparty"), by and between
Topscale Shipping and Clipper.
+ 10.17 -- Charterparty relating to m.v. Clipper Atlantic,
dated January 8, 1993 and as amended by Addendum No.
1, Addendum No. 2, Addendum No. 3 dated Feruary 21,
1996, Addendum No. 4 dated February 21, 1996,
Addendum No. 5 dated August 14, 1996 and Addendum
No. 6 dated August 14, 1996 (the "Clipper Atlantic
Charterparty"), by and between Conifer Shipping and
Clipper.
+ 10.18 -- Charterparty relating to m.v. Millenium Amethyst,
dated June 1, 1998 (the "Millenium Amethyst
Charterparty"), by and between Millenium Amethyst
and Clipper.
+ 10.19 -- Charterparty relating to m.v. Millenium Yama, dated
July 31, 1998 (the "Millenium Yama Charterparty"),
by and between Millenium Yama and Clipper.
+ 10.20 -- Charterparty relating to m.v. Millenium Majestic,
dated June 24, 1998 (the "Millenium Majestic
Charterparty"), by and between Millenium Majestic
and Clipper.
+ 10.21 -- Charterparty relating to m.v. Millenium Aleksander,
dated October 20, 1997, as amended by Addendum No. 1
dated October 20, 1997 and Addendum No. 2 dated July
24, 1998 (the "Millenium Aleksander Charterparty"),
by and between Millenium Aleksander and Tschudi &
Eitzen Group ("T&E").
+ 10.22 -- Charterparty relating to m.v. Millenium Elmar, dated
October 20, 1997, as amended by Addendum No. 1 dated
October 20, 1997 and Addendum No. 2 dated July 24,
1998 (the "Millenium Elmar Charterparty"), by and
between Millenium Elmar and T&E.
+ 10.23 -- Charterparty relating to m.v. Millenium Leader,
dated May 20, 1998 (the "Millenium Leader
Charterparty"), by and between Millenium III and Hai
Sun Hup Shipping ("HSH").
*23.1 -- Consent of Coopers & Lybrand.
*23.2 -- Consent of Thacher Proffitt & Wood (contained in
Exhibit 5.1).
*23.3 -- Consent of Maples and Calder.
*23.4 -- Consent of Andreas P. Demetriades & Associates.
<PAGE>
*23.5 -- Consent of The Law Offices of Basil T. Patkos.
*23.6 -- Consent of SSY Consultancy and Research Limited of
London.
*23.7 -- Consent of Drewry Shipping Consultants Ltd.
*23.8 -- Consent of Shipping Intelligence, Inc.
*23.9 -- Consent of Maritime Research, Inc.
*25.1 -- Statement of Eligibility of Trustee on Form T-1.
*99.1 -- Letter of Transmittal.
*99.2 -- Notice of Guaranteed Delivery.
- - - - - - --------------------
* Previously filed.
+ To be filed by amendment.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrants pursuant to the foregoing
provisions, or otherwise, the Registrants have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, each of
the Registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes: to file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the Securities
Act; (ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes: that, for the purpose of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby
<PAGE>
undertakes: to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes: if the registrant is a foreign private issuer, to
file a post-effective amendment to the Registration Statement to include any
financial statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Securities Act need
not be furnished, PROVIDED, that the Registrants include in the prospectus, by
means of a post-effective amendment, financial statements required pursuant to
this paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes: that prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145 (c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
Each of Millenium and the Subsidiary Guarantors, each an undersigned
Registrant, hereby undertakes: to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM SEACARRIERS, INC.
By: /s/ Vassilios M. Livanos
---------------------------
Name: Vassilios M. Livanos
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Theotokis S. Milas, Nico
A. Cotzias, Jr., Michael A. Dritz, Harald H. Ludwig, Robert W. Nilsen, Connor
O'Brien and Tom Stage Petersen constitutes and appoints Vassilios M. Livanos his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of Millenium
Seacarriers, Inc.) to sign any or all amendments to this Registration Statement
(including post-effective amendments), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
/s/ Vassilios M. Livanos
-------------------------------------
Name: Vassilios M. Livanos
Title: Chairman and Director
Date: November 16, 1998
/s/ Theotokis S. Milas
-------------------------------------
Name: Theotokis S. Milas
Title: Chief Operating Officer
Date: November 16, 1998
/s/ Nico A. Cotzias
-------------------------------------
Name: Nico A. Cotzias, Jr.
Title: Chief Financial Officer, Chief
Accounting Officer and Director
Date: November 16, 1998
<PAGE>
/s/ Michael A. Dritz
-----------------------------------
Name: Michael A. Dritz
Title: Director
Date: November 16, 1998
/s/ Harald H. Ludwig
-----------------------------------
Name: Harald H. Ludwig
Title: Director
Date: November 16, 1998
/s/ Robert W. Nilsen
-----------------------------------
Name: Robert W. Nilsen
Title: Director
Date: November 16, 1998
/s/ Connor O'brien
-----------------------------------
Name: Connor O'Brien
Title: Director
Date: November 16, 1998
/s/ Tom Stage Petersen
-----------------------------------
Name: Tom Stage Petersen
Title: Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM II, INC.
By: /s/ Vassilios M. Livanos
---------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM III, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM IV, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM V, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM VI, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM VII, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM YAMA, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM ELMAR, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM AMETHYST, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM MAJESTIC, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on November 16, 1998.
MILLENIUM ALEKSANDER, INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
November 16, 1998.
OAKMONT SHIPPING AND TRADING LIMITED
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
November 16, 1998.
RAPID OCEAN CARRIERS INC.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pireaus, Greece, on
November 16, 1998, 1998.
IVY NAVIGATION LTD.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
November 16, 1998.
TOPSCALE SHIPPING COMPANY LIMITED
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
November 16, 1998.
CONIFER SHIPPING COMPANY LIMITED
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
By: /s/ Vassilios M. Livanos
-----------------------------
Name: Vassilios M. Livanos
Title: Secretary and Director
Date: November 16, 1998
By: /s/ Nico A. Cotzias
-----------------------------
Name: Nico A. Cotzias, Jr.
Title: Vice President, Treasurer
and Director
Date: November 16, 1998
<PAGE>
INDEX TO EXHIBITS
*3.1 -- Memorandum and Articles of Association of Millenium.
*3.2 -- Articles of Incorporation of Oakmont Shipping.
*3.3 -- By-laws of Oakmont Shipping.
*3.4 -- Articles of Incorporation of Rapid Ocean.
*3.5 -- By-laws of Rapid Ocean.
*3.6 -- Articles of Incorporation of Ivy Navigation.
*3.7 -- By-laws of Ivy Navigation.
*3.8 -- Memorandum and Articles of Association of Topscale Shipping.
*3.9 -- Memorandum and Articles of Association of Conifer Shipping.
*3.10 -- Memorandum and Articles of Association of Millenium II.
*3.11 -- Memorandum and Articles of Association of Millenium III.
*3.12 -- Memorandum and Articles of Association of Millenium IV.
*3.13 -- Memorandum and Articles of Association of Millenium V.
*3.14 -- Memorandum and Articles of Association of Millenium VI.
*3.15 -- Memorandum and Articles of Association of Millenium VII.
*3.16 -- Memorandum and Articles of Association of Millenium Yama.
*3.17 -- Memorandum and Articles of Association of Millenium Elmar.
*3.18 -- Memorandum and Articles of Association of Millenium Majestic.
*3.19 -- Memorandum and Articles of Association of Millenium Amethyst.
*3.20 -- Memorandum and Articles of Association of Millenium Aleksander.
*4.1 -- Indenture, dated as of July 15, 1998, by and among Millenium
Seacarriers, the Subsidiary Guarantors and the Trustee.
*4.2 -- Escrow Agreement, dated as of July 15, 1998, by and between
Millenium Seacarriers and the Escrow Agent.
*4.3 -- Collateral Agency Agreement, dated as of July 15, 1998, by and
among Millenium Seacarriers, the Subsidiary Guarantors named
therein the Trustee, the Collateral Agent and The Bank of
New York.
*4.4 -- Form of Exchange Note.
*4.5 -- Form of First Preferred Liberian Ship Mortgage.
*4.6 -- Form of First Preferred Panamanian Naval Mortgage.
*4.7 -- Form of Cayman Islands Statutory Ship Mortgage.
*4.8 -- Form of Cayman Islands Deed of Covenants to Cayman Islands
Statutory Ship Mortgage.
*4.9 -- Form of Cypriot Statutory Ship Mortgage.
*4.10 -- Form of Cypriot Deed of Covenants to the Cypriot Statutory Ship
Mortgage.
*4.11 -- Form of Bahamian Statutory Ship Mortgage.
*4.12 -- Form of Bahamian Deed of Covenants to the Bahamian Statutory
Ship Mortgage.
*4.13 -- Form of Insurance Assignment, by and between each of the
Subsidiary Guarantors, as applicable and the Collateral Agent
<PAGE>
*5.1 -- Opinion of Thacher Proffitt & Wood, counsel to Millenium and the
Subsidiary Guarantors, as to the validity of the Exchange Notes.
*8.1 -- Opinion of Thacher Proffitt & Wood, counsel to Millenium and the
Subsidiary Guarantors, as to Certain United States Income Tax
Considerations. (contained in Exhibit 5.1)
*8.2 -- Opinion of Maples and Calder, special counsel to Millenium and
each of the Cayman Subsidiary Guarantors, as to certain Cayman
Island Tax Considerations.
*8.3 -- Opinion of the Law Offices of Basil T. Patkos, special counsel
to each of the Liberian Subsidiary Guarantors, as to certain
Liberian Tax Considerations.
*8.4 -- Opinion of Andreas P. Demetriades & Associates, special counsel
to each of the Cypriot Subsidiary Guarantors, as to certain
Cypriot Tax Considerations.
*10.1 -- Purchase Agreement, dated as of July 20, 1998, by and among
Millenium Seacarriers, the Subsidiary Guarantors named therein
and the Initial Purchasers.
*10.2 -- Management Agreement, dated as of July 1, 1998, by and among
Millenium Seacarriers, the Manager, and the Subsidiary
Guarantors named therein.
*10.3 -- Registration Rights Agreement, dated as of July 20, 1998, by
and among Millenium Seacarriers, the Subsidiary Guarantors named
therein and the Initial Purchasers.
*10.4 -- Credit Agreement, dated as of July 20, 1998, by and between
Millenium Seacarriers and The Bank of New York.
*10.5 -- Warrant Agreement, dated as of July 15, 1998, by and among
Millenium, the Subsidiary Guarantors named therein and the
Warrant Agent.
*10.6 -- Advisory Agreement, dated as of July 24, 1998, by and between
Millenium Seacarriers and Millenium Advisors.
*10.7 -- Guarantee Agreement, dated as of July 20, 1998, by and between
the Subsidiary Guarantors named therein and The Bank of
New York.
+10.8 -- Millenium Hawk Charterparty.
+10.9 -- Millenium Eagle Charterparty.
+10.10 -- Millenium Osprey Charterparty.
+10.11 -- Millenium Falcon Charterparty.
+10.12 -- Millenium Condor Charterparty.
+10.13 -- Monica Marissa Charterparty.
+10.14 -- Clipper Harmony Charterparty.
+10.15 -- Clipper Golden Hind Charterparty.
+10.16 -- Clipper Pacific Charterparty.
+10.17 -- Clipper Atlantic Charterparty.
+10.18 -- Millenium Amethyst Charterparty.
+10.19 -- Millenium Yama Charterparty.
<PAGE>
+10.20 -- Millenium Majestic Charterparty.
+10.21 -- Millenium Aleksander Charterparty.
+10.22 -- Millenium Elmar Charterparty.
+10.23 -- Millenium Leader Charterparty.
*23.1 -- Consent of Coopers & Lybrand.
*23.2 -- Consent of Thacher Proffitt & Wood (contained in Exhibit 5.1).
*23.3 -- Consent of Maples and Calder.
*23.4 -- Consent of Andreas P. Demetriades & Associates.
*23.5 -- Consent of The Law Offices of Basil T. Patkos.
*23.6 -- Consent of SSY Consultancy and Research Limited of London.
*23.7 -- Consent of Drewry Shipping Consultants Ltd.
*23.8 -- Consent of Shipping Intelligence, Inc.
*23.9 -- Consent of Maritime Research, Inc.
*25.1 -- Statement of Eligibility of Trustee on Form T-1.
*99.1 -- Letter of Transmittal.
*99.2 -- Notice of Guaranteed Delivery.
- - - - - - -------------------------
* Previously filed.
+ To be filed by amendment.
